UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended October 31, 2005
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-12803
URSTADT BIDDLE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 04-2458042
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(State of Incorporation) (I.R.S. Employer
Identification No.)
321 RAILROAD AVENUE
GREENWICH, CONNECTICUT 06830
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(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (203) 863-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Class A Common Stock, par value $.01 per share New York Stock Exchange
8.50 % Series C Senior Cumulative Preferred Stock New York Stock Exchange
7.5 % Series D Senior Cumulative Preferred Stock New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes No x
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 3 or 15 (d) of the Act.
Yes No x
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes x No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes x No
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes No x
1
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 30, 2005: Common Shares, par value $.01 per share
$47,785,552; Class A Common Shares, par value $.01 per share $264,569,837.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock and Class A Common Stock, as of January 11, 2006 (latest date
practicable): 7,595,131 Common Shares, par value $.01 per share, and 18,784,850
Class A Common Shares, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held on March 9, 2006
(certain parts as indicated herein) (Part III).
2
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business 4
1 A. Risk Factors 9
1 B. Unresolved Staff Comments 14
2. Properties 15
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security Holders 17
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 18
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
7 A. Quantitative and Qualitative Disclosures about Market Risk 32
8. Financial Statements and Supplementary Data 32
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 32
9 A. Controls and Procedures 32
9 B. Other Information 35
PART III
10. Directors and Executive Officers of the Registrant 36
11. Executive Compensation 36
12. Security Ownership of Certain Beneficial Owners and Management 37
and Related Stockholder Matters
13. Certain Relationships and Related Transactions 37
14. Principal Accountant Fees and Services 37
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
3
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, of Urstadt Biddle Properties Inc. (the
"Company"), contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements can generally be identified by such words
as "anticipate", "believe", "can", "continue", "could", "estimate", "expect",
"intend", "may", "plan", "seek", "should", "will" or variations of such words or
other similar expressions and the negatives of such words. All statements, other
than statements of historical facts, included in this report that address
activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including such matters as future
capital expenditures, dividends and acquisitions (including the amount and
nature thereof), expansion and other development trends of the real estate
industry, business strategies, expansion and growth of the Company's operations
and other such matters are forward-looking statements. These statements are
based on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate. Such
statements are inherently subject to risks, uncertainties and other factors,
many of which cannot be predicted with accuracy and some of which might not even
be anticipated. Future events and actual results, performance or achievements,
financial and otherwise, may differ materially from the results, performance or
achievements expressed or implied by the forward-looking statements. Risk,
uncertainties and other factors that might cause such differences, some of which
could be material, include, but are not limited to economic and other market
conditions; financing risks, such as the inability to obtain debt or equity
financing on favorable terms; the level and volatility of interest rates;
financial stability of tenants; the inability of the Company's properties to
generate revenue increases to offset expense increases; governmental approvals,
actions and initiatives; environmental/safety requirements; risks of real estate
acquisitions (including the failure of acquisitions to close); risks of
disposition strategies; as well as other risks identified in this Annual Report
on Form 10-K under Item 1A. Risk Factors and in the other reports filed by the
Company with the Securities and Exchange Commission (the "SEC").
Item 1. Business.
Organization
The Company, a Maryland Corporation, is a real estate investment trust engaged
in the acquisition, ownership and management of commercial real estate. The
Company was organized as an unincorporated business trust (the "Trust") under
the laws of the Commonwealth of Massachusetts on July 7, 1969. In 1997, the
shareholders of the Trust approved a plan of reorganization of the Trust from a
Massachusetts business trust to a corporation organized in Maryland. The plan of
reorganization was effected by means of a merger of the Trust into the Company.
As a result of the plan of reorganization, the Trust was merged with and into
the Company, the separate existence of the Trust ceased, the Company was the
surviving entity in the merger and each issued and outstanding common share of
beneficial interest of the Trust was converted into one share of Common Stock,
par value $.01 per share, of the Company.
Tax Status - Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code")
beginning with its taxable year ended October 31, 1970. Pursuant to such
provisions of the Code, a REIT which distributes at least 90% of its real estate
investment trust taxable income to its shareholders each year and which meets
certain other conditions regarding the nature of its income and assets will not
be taxed on that portion of its taxable income which is distributed to its
shareholders. Although the Company believes that it qualifies as a real estate
investment trust for federal income tax purposes no assurance can be given that
the Company will continue to qualify as a REIT.
Description of Business
The Company's sole business is the ownership of real estate investments, which
consist principally of investments in income-producing properties, with primary
emphasis on properties in the northeastern part of the United States with a
concentration in Fairfield County, Connecticut and Westchester and Putnam
Counties, New York. The Company's core properties consist principally of
neighborhood and community shopping centers. The remaining properties include
office and retail buildings and industrial properties. The Company seeks to
identify desirable properties for acquisition, which it acquires in the normal
4
course of business. In addition, the Company regularly reviews its portfolio and
from time to time may sell certain of its properties.
The Company intends to continue to invest substantially all of its assets in
income-producing real estate, with an emphasis on neighborhood and community
shopping centers, although the Company will retain the flexibility to invest in
other types of real property. While the Company is not limited to any geographic
location, the Company's current strategy is to invest primarily in properties
located in the northeastern region of the United States with a concentration in
Fairfield County, Connecticut and Westchester and Putnam Counties, New York.
At October 31, 2005, the Company owned or had an equity interest in thirty-four
properties comprised of neighborhood and community shopping centers, office and
retail buildings and service and distribution facilities located in eight states
throughout the United States, containing a total of 3.7 million square feet of
gross leasable area. For a description of the Company's individual investments,
see Item 2-Properties.
Investment and Operating Strategy
The Company's investment objective is to increase the cash flow and consequently
the value of its properties. The Company seeks growth through (i) the strategic
re-tenanting, renovation and expansion of its existing properties, and (ii) the
selective acquisition of income-producing properties, primarily neighborhood and
community shopping centers, in its targeted geographic region. The Company may
also invest in other types of real estate in the targeted geographic region.
The Company invests in properties where cost effective renovation and expansion
programs, combined with effective leasing and operating strategies, can improve
the properties' values and economic returns. Retail properties are typically
adaptable for varied tenant layouts and can be reconfigured to accommodate new
tenants or the changing space needs of existing tenants. In determining whether
to proceed with a renovation or expansion, the Company considers both the cost
of such expansion or renovation and the increase in rent attributable to such
expansion or renovation. The Company believes that certain of its properties
provide opportunities for future renovation and expansion.
When evaluating potential acquisitions, the Company will consider such factors
as (i) economic, demographic, and regulatory conditions in the property's local
and regional market; (ii) the location, construction quality, and design of the
property; (iii) the current and projected cash flow of the property and the
potential to increase cash flow; (iv) the potential for capital appreciation of
the property; (v) the terms of tenant leases, including the relationship between
the property's current rents and market rents and the ability to increase rents
upon lease rollover; (vi) the occupancy and demand by tenants for properties of
a similar type in the market area; (vii) the potential to complete a strategic
renovation, expansion or re-tenanting of the property; (viii) the property's
current expense structure and the potential to increase operating margins; and
(ix) competition from comparable properties in the market area.
The Company may from time to time enter into arrangements for the acquisition of
properties with unaffiliated property owners through the issuance of units of
limited partnership interests in entities that the Company controls. These units
may be redeemable for cash or for shares of the Company's Common stock or Class
A Common stock. The Company believes that this acquisition method may permit it
to acquire properties from property owners wishing to enter into tax-deferred
transactions.
Core Properties
The Company considers those properties that are directly managed by the Company,
concentrated in the retail sector and located close to the Company's
headquarters in Fairfield County, Connecticut, to be core properties. Of the
thirty-four properties in the Company's portfolio, thirty-one properties are
considered core properties consisting of twenty-six retail properties and five
office buildings (including the Company's executive headquarters). At October
31, 2005, these properties contained in the aggregate 3.1 million square feet of
gross leasable area. The Company's core properties collectively had 473 tenants
providing a wide range of products and services. Tenants include regional
supermarkets, national and regional discount department stores, other local
retailers and office tenants. At October 31, 2005, the core properties were 98%
leased. The Company believes the core properties are adequately covered by
insurance. No single tenant comprised more than 5.6% of the total annual base
rents of the Company's core properties.
Three of the core properties in the Company's portfolio are owned by
partnerships in which the Company is the sole general partner.
5
The following table sets out a schedule of our ten largest tenants by percent of
total annual base rent of our core properties as of October 31, 2005.
Number % of Total
of Annual Base Rent of
Tenant Stores Core Properties
------ ------ ---------------
The Stop & Shop Co. 3 5.6%
Bed, Bath, and Beyond 2 2.7%
Toy's R Us 2 2.4%
Marshall's 2 2.1%
ShopRite Supermarkets 2 2.1%
Christmas Tree Shops 1 1.8%
Big Y Foods 1 1.7%
Borders Inc 1 1.7%
The Sports Authority 1 1.5%
Shaw's Supermarkets 1 1.5%
----
23.1%
====
The Company's single largest real estate investment is its 90% interest in the
Ridgeway Shopping Center ("Ridgeway"). Ridgeway is located in Stamford,
Connecticut and was developed in the 1950's and redeveloped in the mid 1990's.
The property contains approximately 369,000 square feet of gross leasable space.
It is the dominant grocery anchored center and the largest non-mall shopping
center located in the City of Stamford, Fairfield County, Connecticut. As of
October 31, 2005, Ridgeway was approximately 95% leased. The property's largest
tenants (by base rent) are: The Stop & Shop Company (a division of Ahold), (22%)
Bed, Bath and Beyond, (16%) and Marshall's Inc, a division of the TJX Companies
(12%). No other tenant accounts for more than 10% of Ridgeway's annual base
rents.
The following table sets out a schedule of the annual lease expirations for
retail leases at Ridgeway as of October 31, 2005 for each of the next ten years
and thereafter (assuming that no tenants exercise renewal or cancellation
options and that there are no tenant bankruptcies or other tenant defaults):
Year of Number of Square Minimum Base Rent
Expiration Leases Expiring Footage Base Rentals (%)
- ---------- --------------- ------- ------------ -------
2006 - - - -
2007 4 9,400 $340,000 3.9%
2008 10 51,716 1,448,000 16.6%
2009 2 4,646 184,000 2.1%
2010 3 36,415 655,000 7.5%
2011 2 4,440 148,000 1.7%
2012 4 21,567 654,000 7.5%
2013 3 60,676 1,491,000 17.1%
2014 2 4,558 134,000 1.5%
2015 3 7,635 244,000 2.8%
Thereafter 3 148,510 3,430,000 39.3%
- ------- --------- -----
Total 36 349,563 $8,728,000 100%
== ======= ========== ====
A substantial portion of the Company's operating lease income is derived from
tenants under leases with terms greater than one year. Certain of the leases
provide for the payment of fixed base rentals monthly in advance and for the
payment of a pro-rata share of the real estate taxes, insurance, utilities and
common area maintenance expenses incurred in operating the properties.
6
Non-Core Properties
In a prior year, the Board of Directors of the Company expanded and refined the
strategic objectives of the Company to concentrate the real estate portfolio
into one of primarily retail properties located in the Northeast and authorized
the sale of the Company's non-core properties in the normal course of business
over a period of several years given prevailing market conditions and the
characteristics of each property.
Through this strategy, the Company seeks to update its core property portfolio
by disposing of properties which have limited growth potential and redeploying
capital into properties in its target geographic region and product type where
the Company's management skills may enhance property values. The Company may
engage from time to time in like-kind property exchanges, which allow the
Company to dispose of properties and redeploy proceeds in a tax efficient
manner.
During fiscal 2005, the Company sold its office building in Southfield, Michigan
for $9.2 million and realized a gain on the sale of $1.4 million. The net
proceeds were used to complete a like-kind exchange for a core retail property
located in Fairfield County, Connecticut.
At October 31, 2005, the Company's non-core properties consisted of one retail
property totaling 126,000 square feet and two industrial facilities with a total
of 447,000 square feet of gross leasable area ("GLA.") The non-core properties
collectively had 4 tenants and were 100% leased at October 31, 2005.
The retail property, located in Tempe, Arizona is leased to two tenants under
long-term leases. The leases obligate these tenants to pay all taxes, insurance,
maintenance and other operating costs on their portion of the property leased
during the term of the lease.
The two industrial facilities are 100% occupied and consist of automobile and
truck parts distribution warehouses. The facilities are net leased to
DaimlerChrysler Corporation under long-term lease arrangements whereby the
tenant pays all taxes, insurance, maintenance and other operating costs of the
property during the term of the lease. During fiscal 2005, the Company executed
a five year extension of its lease with DaimlerChrysler for one of the two
industrial properties.
At October 31, 2005, the Company also holds two fixed rate mortgage notes with a
total book value of $2,024,000. The mortgages are secured by retail properties
that were previously owned by the Company.
Financing Strategy
The Company intends to continue to finance acquisitions and property
improvements and/or expansions with the most advantageous sources of capital
which it believes are available to the Company at the time, and which may
include the sale of common or preferred equity through public offerings or
private placements, the incurrence of additional indebtedness through secured or
unsecured borrowings, and the reinvestment of proceeds from the disposition of
assets. The Company's financing strategy is to maintain a strong and flexible
financial position by (i) maintaining a prudent level of leverage, and (ii)
minimizing its exposure to interest rate risk represented by floating rate debt.
Matters Relating to the Real Estate Business
The Company is subject to certain business risks arising in connection with
owning real estate which include, among others, (1) the bankruptcy or insolvency
of, or a downturn in the business of, any of its major tenants, (2) the
possibility that such tenants will not renew their leases as they expire, (3)
vacated anchor space affecting an entire shopping center because of the loss of
the departed anchor tenant's customer drawing power, (4) risks relating to
leverage, including uncertainty that the Company will be able to refinance its
indebtedness, and the risk of higher interest rates, (5) potential liability for
unknown or future environmental matters, and (6) the risk of uninsured losses.
Unfavorable economic conditions could also result in the inability of tenants in
certain retail sectors to meet their lease obligations and otherwise could
adversely affect the Company's ability to attract and retain desirable tenants.
The Company believes that its shopping centers are relatively well positioned to
withstand adverse economic conditions since they typically are anchored by
grocery stores, drug stores and discount department stores that offer day-to-day
necessities rather than luxury goods.
7
Compliance with Governmental Regulations
The Company, like others in the commercial real estate industry, is subject to
numerous environmental laws and regulations. Although potential liability could
exist for unknown or future environmental matters, the Company believes that its
tenants are operating in accordance with current laws and regulations.
Competition
The real estate investment business is highly competitive. The Company competes
for real estate investments with investors of all types, including domestic and
foreign corporations, financial institutions, other real estate investment
trusts and individuals. In addition, the Company's properties are subject to
local competitors from the surrounding areas. The Company does not consider its
real estate business to be seasonal in nature. The Company's shopping centers
compete for tenants with other regional, community or neighborhood shopping
centers in the respective areas where Company retail properties are located. The
Company's office buildings compete for tenants principally with office buildings
throughout the respective areas in which they are located. In most areas where
the Company's office buildings are located, competition for tenants is intense.
Leasing space to prospective tenants is generally determined on the basis of,
among other things, rental rates, location, and physical quality of the property
and availability of space.
Since the Company's industrial properties are net leased under long-term lease
arrangements that are not due to expire in the next twelve months, the Company
does not currently face any immediate competitive re-leasing pressures with
respect to such properties.
Property Management
The Company actively manages and supervises the operations and leasing at all of
its core properties. The Company's non-core properties are net leased to tenants
under long-term lease arrangements, in which case, property management is
provided by the tenants.
Employees
The Company's executive offices are located at 321 Railroad Avenue, Greenwich,
Connecticut. It occupies approximately 5,000 square feet in a two-story office
building owned by the Company. The Company has 30 employees and believes that
its relationship with its employees is good.
Company Website
All of the Company's filings with the Securities and Exchange commission,
including the Company's annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge at the Company's website at
www.ubproperties.com, as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission. These filings can also be accessed through the Securities
and Exchange Commission's website at www.sec.gov. Alternatively, the Company
will provide paper copies of its filings free of charge upon request.
Code of Ethics and Whistleblower Policies
The Company's Board of Directors has adopted a Code of Ethics for Senior
Financial Officers that applies to the Company's Chief Executive Officer, Chief
Financial Officer and Controller. The Board also adopted a Code of Business
Conduct and Ethics applicable to all employees, as well as a "Whistleblower
Policy".
Financial Information About Industry Segments
The Company operates in one industry segment, ownership of commercial real
estate properties, which are located principally in the northeastern United
States. The Company does not distinguish its property operations for purposes of
measuring performance. Accordingly, the Company believes it has a single
reportable segment for disclosure purposes.
8
Item 1A. Risk Factors
Risks related to our operations and properties
There are risks relating to investments in real estate and the value of our
property interests depends on conditions beyond our control. Real property
investments are illiquid and we may be unable to change our property portfolio
on a timely basis in response to changing market or economic conditions. Yields
from our properties depend on their net income and capital appreciation. Real
property income and capital appreciation may be adversely affected by general
and local economic conditions, neighborhood values, competitive overbuilding,
zoning laws, weather, casualty losses and other factors beyond our control.
Since substantially all of the Company's income is rental income from real
property, the Company's income and cash flow could be adversely affected if a
large tenant is, or a significant number of tenants are, unable to pay rent or
if available space cannot be rented on favorable terms.
Operating and other expenses of our properties, particularly significant
expenses such as interest, real estate taxes and maintenance costs, generally do
not decrease when income decreases and, even if revenues increase, operating and
other expenses may increase faster than revenues.
Our business strategy is mainly concentrated in one type of commercial property
and in one geographic location. Our primary investment focus is neighborhood and
community shopping centers located in the northeastern United States, with a
concentration in Fairfield County, Connecticut, and Westchester and Putnam
Counties, New York. For the year ended October 31, 2005, approximately 74% of
our total revenues were from properties located in these three counties. Various
factors may adversely affect a shopping center's profitability. These factors
include circumstances that affect consumer spending, such as general economic
conditions, economic business cycles, rates of employment, income growth,
interest rates and general consumer sentiment. These factors could have a more
significant localized effect in the areas where our core properties are
concentrated. Changes to the real estate market in our focus areas, such as an
increase in retail space or a decrease in demand for shopping center properties,
could adversely affect operating results. As a result, we may be exposed to
greater risks than if our investment focus was based on more diversified types
of properties and in more diversified geographic areas.
In addition, although we generally have invested between $5 million and $35
million per property, we have no limit on the size of our investments. The
Company's single largest real estate investment is its 90% interest in the
Ridgeway Shopping Center ("Ridgeway") located in Stamford, Connecticut. For the
year ended October 31, 2005, Ridgeway revenues represented approximately 15% of
the Company's total revenues and approximately 19% of the Company's total assets
at October 31, 2005. The loss of this center or a material decrease in revenues
from the center could have a material adverse effect on the Company.
In fiscal 2005, the Company acquired the Dock Shopping center in Stratford,
Connecticut for approximately $51.1 million and expects to consider additional
large acquisitions. If in the future we make larger individual investments than
we have historically, our portfolio will be concentrated in a smaller number of
assets, increasing the risk to stockholders.
We are dependent on anchor tenants in many of our retail properties. Most of our
retail properties are dependent on a major or anchor tenant, a few of which
lease space in more than one of our properties. If we are unable to renew any
lease we have with the anchor tenant at one of these properties upon expiration
of the current lease, or to re-lease the space to another anchor tenant of
similar or better quality upon expiration of the current lease on similar or
better terms, we could experience material adverse consequences such as higher
vacancy, re-leasing on less favorable economic terms, reduced net income,
reduced funds from operations and reduced property values. Vacated anchor space
also could adversely affect an entire shopping center because of the loss of the
departed anchor tenant's customer drawing power. Loss of customer drawing power
also can occur through the exercise of the right that some anchors have to
vacate and prevent re-tenanting by paying rent for the balance of the lease
term. In addition, vacated anchor space could, under certain circumstances,
permit other tenants to pay a reduced rent or terminate their leases at the
affected property, which could adversely affect the future income from such
property. There can be no assurance that our anchor tenants will renew their
leases when they expire or will be willing to renew on similar economic terms.
See Item 1 - Business - Core Properties in this Annual Report on Form 10-K for
additional information on our ten largest tenants by percent of total annual
base rent of our core properties.
9
Similarly, if one or more of our anchor tenants goes bankrupt, we could
experience material adverse consequences like those described above. Under
bankruptcy law, tenants have the right to reject their leases. In the event a
tenant exercises this right, the landlord generally may file a claim for lost
rent equal to the greater of either one year's rent (including tenant expense
reimbursements) for remaining terms greater than one year or 15% of the rent
remaining under the balance of the lease term, not to exceed three years. Actual
amounts to be received in satisfaction of those claims will be subject to the
tenant's final plan of reorganization and the availability of funds to pay its
creditors.
We face potential difficulties or delays in renewing leases or re-leasing space.
We derive most of our income from rent received from our tenants. Although our
properties currently have favorable occupancy rates, we cannot predict that
current tenants will renew their leases upon the expiration of their terms. In
addition, we cannot predict if current tenants might attempt to terminate their
leases prior to the scheduled expiration of such leases. If this occurs, we may
not be able to promptly locate qualified replacement tenants and, as a result,
we would lose a source of revenue while remaining responsible for the payment of
our obligations. Even if tenants decide to renew their leases, the terms of
renewals or new leases, including the cost of required renovations or
concessions to tenants, may be less favorable than current lease terms. See Item
2 - Properties- Lease Expirations in this Annual Report on Form 10-K for
additional information concerning scheduled lease expirations.
In some cases, our tenant leases contain provisions giving the tenant the
exclusive right to sell particular types of merchandise or provide specific
types of services within the particular retail center, or limit the ability of
other tenants within the center to sell that merchandise or provide those
services. When re-leasing space after a vacancy by one of these tenants, such
provisions may limit the number and types of prospective tenants for vacant
space. The failure to re-lease space or to re-lease space on satisfactory terms
could adversely affect our results from operations. Additionally, properties we
may acquire in the future may not be fully leased and the cash flow from
existing operations may be insufficient to pay the operating expenses and debt
service associated with that property until the property is fully leased. As a
result, our net income, funds from operations and ability to pay dividends to
stockholders could be adversely affected.
Competition may adversely affect acquisition of properties and leasing
operations. We compete for the purchase of commercial property with many
entities, including other publicly traded commercial REITs. Many of our
competitors have substantially greater financial resources than ours. In
addition, our competitors may be willing to accept lower returns on their
investments. If our competitors prevent us from buying the properties that we
have targeted for acquisition, we may not be able to meet our property
acquisition and development goals. We may incur costs on unsuccessful
acquisitions that we will not be able to recover. The operating performance of
our property acquisitions may also fall short of our expectations, which could
adversely affect our financial performance.
If our competitors offer space at rental rates below our current rates or the
market rates, we may lose current or potential tenants to other properties in
our markets and we may need to reduce rental rates below our current rates in
order to retain tenants upon expiration of their leases. As a result, our
results of operations and cash flow may be adversely affected. In addition, our
tenants face increasing competition from internet commerce, outlet malls,
discount shopping clubs and other sources which could hinder our ability to
attract and retain tenants and/or reduce rents at our properties.
We may be unable to acquire or may be delayed in acquiring, renovating or
improving properties with proceeds obtained from the sale of stock in the public
market or from the sale of other properties. To acquire income producing
properties consistent with our business strategy and for working capital, from
time to time we may offer for sale additional stock in the public markets or
sell properties that are not in our primary market or which we believe are
underperforming. We expect to reinvest such proceeds in income producing
properties. However, we will make investments in short-term income producing
securities if these uses are not immediately undertaken. Making short-term
investments generally will provide us with a lower rate of return than investing
in income-producing real estate. As a result, our inability to acquire, or
delays in acquiring, renovating or improving, appropriate properties may dilute
the amount of cash available to pay dividends to our stockholders.
We face risks associated with the use of debt to fund acquisitions and
developments, including refinancing risk. We have incurred, and expect to
continue to incur, indebtedness to advance our objectives. Our charter does not
limit the amount of indebtedness we may incur, although we may not exceed a debt
to capitalization ratio (as such terms are defined in the respective Articles
Supplementary) of 0.55 without the consent of our Series B and Series C
preferred stockholders. Using debt to acquire properties, whether with recourse
to us generally or only with respect to a particular property, creates an
opportunity for increased net income, but at the same time creates risks. We use
debt to fund investments only when we believe it will enhance our risk-adjusted
returns. However, we cannot be sure that our use of leverage will prove to be
beneficial. Moreover, when our debt is secured by our assets, we can lose those
assets through foreclosure if we do
10
not meet our debt service obligations.Incurring substantial debt may adversely
affect our business and operating results by:
o requiring us to use a substantial portion of our cash flow to pay interest,
which reduces the amount available for distributions, acquisitions and
capital expenditures;
o making us more vulnerable to economic and industry downturns and reducing
our flexibility in response to changing business and economic conditions;
o requiring us to agree to less favorable terms, including higher interest
rates, in order to incur additional debt; and otherwise limiting our
ability to borrow for operations, capital or to finance acquisitions in the
future.
Market interest rates could adversely affect the share price of our stock and
increase the cost of refinancing debt. A variety of factors may influence the
price of our common equities in the public trading markets. We believe that
investors generally perceive REITs as yield-driven investments and compare the
annual yield from dividends by REITs with yields on various other types of
financial instruments. An increase in market interest rates may lead purchasers
of stock to seek a higher annual dividend rate from other investments, which
could adversely affect the market price of the shares. In addition, we are
subject to the risk that we will not be able to refinance existing indebtedness
on our properties. We anticipate that a portion of the principal of our debt
will not be repaid prior to maturity. Therefore, we likely will need to
refinance at least a portion of our outstanding debt as it matures. A change in
interest rates may increase the risk that we will not be able to refinance
existing debt or that the terms of any refinancing will not be as favorable as
the terms of the existing debt. If principal payments due at maturity cannot be
refinanced, extended or repaid with proceeds from other sources, such as new
equity capital or sales of properties, our cash flow will not be sufficient to
repay all maturing debt in years when significant "balloon" payments come due.
As a result, our ability to retain properties or pay dividends to stockholders
could be adversely affected and we may be forced to dispose of properties on
unfavorable terms, which could adversely affect our business and net income.
Construction and renovation risks could adversely affect our profitability. We
currently are renovating some of our properties and may in the future renovate
other properties, including tenant improvements required under leases. Our
renovation and related construction activities may expose us to certain risks.
We may incur renovation costs for a property which exceed our original estimates
due to increased costs for materials or labor or other costs that are
unexpected. We also may be unable to complete renovation of a property on
schedule, which could result in increased debt service expense or construction
costs. Additionally, some tenants may have the right to terminate their leases
if a renovation project is not completed on time. The time frame required to
recoup our renovation and construction costs and to realize a return on such
costs can often be significant.
We are dependent on key personnel. We depend on the services of our existing
senior management to carry out our business and investment strategies. As we
expand, we will continue to need to recruit and retain qualified additional
senior management. The loss of the services of any of our key management
personnel or our inability to recruit and retain qualified personnel in the
future could have an adverse effect on our business and financial results.
Uninsured and underinsured losses may affect the value of, or return from, our
property interests. We maintain comprehensive insurance on our properties, and
the properties securing our loans, in amounts which we believe are sufficient to
permit replacement of the properties in the event of a total loss, subject to
applicable deductibles. There are certain types of losses, such as losses
resulting from wars, terrorism, earthquakes, floods, hurricanes or other acts of
God that may be uninsurable or not economically insurable. Should an uninsured
loss or a loss in excess of insured limits occur, we could lose capital invested
in a property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. In addition, changes in building codes and ordinances,
environmental considerations and other factors might make it impracticable for
us to use insurance proceeds to replace a damaged or destroyed property. If any
of these or similar events occurs, it may reduce our return from an affected
property and the value of our investment.
Properties with environmental problems may create liabilities for us. Under
various federal, state and local environmental laws, statutes, ordinances, rules
and regulations, as an owner of real property, we may be liable for the costs of
removal or remediation of certain hazardous or toxic substances at, on, in or
under our properties, as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and penalties and
damages for injuries to persons and adjacent property). These laws may impose
liability without regard to whether we knew of, or were responsible for, the
presence or disposal of those substances. This liability may be imposed on us in
connection with the activities of an operator of, or tenant at, the property.
The cost of any required remediation, removal, fines or personal or property
damages and our liability therefore could exceed the value of the property
and/or our aggregate assets. In addition, the presence of those substances, or
the failure to properly dispose of or remove those substances, may adversely
11
affect our ability to sell or rent that property or to borrow using that
property as collateral, which, in turn, would reduce our revenues and ability to
make distributions.
A property can be adversely affected either through direct physical
contamination or as the result of hazardous or toxic substances or other
contaminants that have or may have emanated from other properties. Although our
tenants are primarily responsible for any environmental damages and claims
related to the leased premises, in the event of the bankruptcy or inability of
any of our tenants to satisfy any obligations with respect to the property
leased to that tenant, we may be required to satisfy such obligations. In
addition, we may be held directly liable for any such damages or claims
irrespective of the provisions of any lease.
Prior to the acquisition of any property and from time to time thereafter, we
obtain Phase I environmental reports and, when warranted, Phase II environmental
reports concerning the Company's properties. Based on these reports and on our
ongoing review of our properties, as of the date of this Annual Report on Form
10-K, management of the Company is not aware of any environmental condition with
respect to any of our property interests that we believe would be reasonably
likely to have a material adverse effect on the Company. There can be no
assurance, however, that (a) the discovery of environmental conditions that were
previously unknown, (b) changes in law, (c) the conduct of tenants or (d)
activities relating to properties in the vicinity of the Company's properties,
will not expose the Company to material liability in the future. Changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures or may otherwise adversely
affect the operations of our tenants, which could adversely affect our financial
condition and results of operations.
Risks Related to our Organization and Structure
We will be taxed as a regular corporation if we fail to maintain our REIT
status. Since our founding in 1969, we have operated, and intend to continue to
operate, in a manner that enables us to qualify as a REIT, or REIT, for federal
income tax purposes. However, the federal income tax laws governing REITs are
complex. The determination that we qualify as a REIT requires an analysis of
various factual matters and circumstances that may not be completely within our
control. For example, to qualify as a REIT, at least 95% of our gross income
must come from specific passive sources, such as rent, that are itemized in the
REIT tax laws. In addition, to qualify as a REIT, we cannot own specified
amounts of debt and equity securities of some issuers. We also are required to
distribute to our stockholders at least 90% of our REIT taxable income
(excluding capital gains) each year. We have received an opinion of counsel that
we qualify as a REIT based on our current operations and on certain assumptions
and representations concerning future operations. Opinions of counsel are not
binding on the Internal Revenue Service (the "IRS") or any court. The opinion
only represents the view of counsel based on counsel's review and analysis of
existing law. At any time, new laws, interpretations or court decision may
change the federal tax laws or the federal tax consequences of qualification as
a REIT. Furthermore, our continued qualification as a REIT depends on our
satisfaction of the asset, income, organizational, distribution and stockholder
ownership requirements of the Internal Revenue Code on a continuing basis. If we
fail to qualify as a REIT in any taxable year and do not qualify for certain
Internal Revenue Code relief provisions, we will be subject to federal income
tax, including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. In addition, distributions to stockholders would not be
deductible in computing our taxable income. Corporate tax liability would reduce
the amount of cash available for distribution to stockholders which, in turn,
would reduce the market price of our stock. Unless entitled to relief under
certain Internal Revenue Code provisions, we also would be disqualified from
taxation as a REIT for the four taxable years following the year during which we
ceased to qualify as a REIT.
We will pay federal taxes if we do not distribute 100% of our taxable income. To
the extent that we distribute less than 100% of our taxable income, we will be
subject to federal corporate income tax on our undistributed income. In
addition, we will incur a 4% nondeductible excise tax on the amount, if any, by
which our distributions in any year are less than the sum of:
o 85% of ourordinary income for that year;
o 95% of our capital gain net income for thatyear; and
o 100% of our undistributed taxable income from prior years.
We have paid out, and intend to continue to pay out, our income to our
stockholders in a manner intended to satisfy the distribution requirement and to
avoid corporate income tax and the 4% nondeductible excise tax. Differences in
timing between the recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us to borrow money
or sell assets to pay out enough of our taxable income to satisfy the
distribution requirement and to avoid corporate income tax and the 4% excise tax
in a particular year.
12
Gain on disposition of assets deemed held for sale in the ordinary course is
subject to 100% tax. If we sell any of our assets, the IRS may determine that
the sale is a disposition of an asset held primarily for sale to customers in
the ordinary course of a trade or business. Gain from this kind of sale
generally will be subject to a 100% tax. Whether an asset is held "primarily for
sale to customers in the ordinary course of a trade or business" depends on the
particular facts and circumstances of the sale. Although we will attempt to
comply with the terms of safe-harbor provisions in the Internal Revenue Code
prescribing when asset sales will not be so characterized, we cannot assure you
that we will be able to do so.
Our ownership limitation may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% in value
of our outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals during the last half of each taxable year. To preserve our
REIT qualification, our charter generally prohibits any person from owning
shares of any class with a value of more than 7.5% of the value of all of our
outstanding capital stock and provides that:
o a transfer that violates the limitation is void;
o shares transferred to a stockholder in excess of the ownership limitation
are automatically converted, by the terms of our
charter, into shares of "Excess Stock;"
o a purported transferee gets no rights to the shares that violate the
limitation except the right to designate a transferee of the Excess Stock
held in trust; and
o the Excess Stock will be held by us as trustee of a trust for the exclusive
benefit of future transferees to whom the shares of capital stock
ultimately will be transferred without violating the ownership limitation.
We may also redeem Excess Stock at a price which may be less than the price paid
by a stockholder. Pursuant to authority under our charter, our board of
directors has determined that the ownership limitation does not apply to Mr.
Charles J. Urstadt, our Chairman and Chief Executive Officer, who beneficially
owns 38.6% of our outstanding common stock and 1.4% of our outstanding Class A
common stock as of the date of this Annual Report on Form 10-K. Such holdings
represent approximately 34.4% of our outstanding voting interests. In addition,
our directors and executive officers, as a group, hold approximately 51.1% of
our outstanding voting interests through their beneficial ownership of our
common stock and Class A common stock. The ownership limitation may discourage a
takeover or other transaction that our stockholders believe to be desirable.
Certain provisions in our charter and bylaws and Maryland law may prevent or
delay a change of control or limit our stockholders from receiving a premium for
their shares. Among the provisions contained in our charter and bylaws and
Maryland law are the following:
o Our board of directors is divided into three classes, with directors in
each class elected for three-year staggered terms.
o Our directors may be removed only for cause upon the vote of the holders of
two-thirds of the voting power of our common equity securities.
o Our stockholders may call a special meeting of stockholders only if the
holders of a majority of the voting power of our common equity securities
request such a meeting in writing.
o Any consolidation, merger, share exchange or transfer of all or
substantially all of our assets must be approved by (a) a majority of our
directors who are currently in office or who are approved or recommended by
a majority of our directors who are currently in office (the "Continuing
Directors") and (b) the holders of two-thirds of the voting power of our
common equity securities.
o Certain provisions of our charter may only be amended by (a) a vote of a
majority of our Continuing Directors and (b) the holders of two-thirds of
the voting power of our common equity securities. These provisions relate
to the election, classification and removal of directors, the ownership
limit and the stockholder vote required for certain business combination
transactions.
o The number of directors may be increased or decreased by a vote of our
board of directors.
In addition, we are subject to various provisions of Maryland law that impose
restrictions and require affected persons to follow specified procedures with
respect to certain takeover offers and business combinations, including
combinations with persons who own 10% or more of our outstanding shares. These
provisions of Maryland law could delay, defer or prevent a transaction or a
change of control that our stockholders might deem to be in their best
interests. Furthermore, shares acquired in a control share acquisition have no
voting rights, except to the extent approved by the affirmative vote of
two-thirds of all votes entitled to be cast on the matter, excluding all
interested shares. Under Maryland law, "control shares" are those which, when
aggregated with any other shares held by the acquiror, allow the acquiror to
exercise voting power within specified ranges. The control share provisions of
Maryland law also could delay, defer or prevent a transaction or a change of
control which our stockholders might deem to be in their best interests. As
13
permitted by Maryland law, our charter and bylaws provide that the "control
shares" and "business combinations" provisions of Maryland law described above
will not apply to acquisitions of those shares by Mr. Charles J. Urstadt or to
transactions between the Company and Mr. Urstadt or any of his affiliates.
Consequently, unless such exemptions are amended or repealed, we may in the
future enter into business combinations or other transactions with Mr. Urstadt
or any of his affiliates without complying with the requirements of Maryland
anti-takeover laws. In view of the common equity securities controlled by Mr.
Charles J. Urstadt, Mr. Urstadt may control a sufficient percentage of the
voting power of our common equity securities to effectively block approval of
any proposal which requires a vote of our stockholders.
Our stockholder rights plan could deter a change of control. We have adopted a
stockholder rights plan. This plan may deter a person or a group from acquiring
more than 10% of the combined voting power of our outstanding shares of common
stock and Class A common stock because, after (i) the person or group acquires
more than 10% of the combined voting power of our outstanding common stock and
Class A common stock, or (ii) the commencement of a tender offer or exchange
offer by any person (other than us, any one of our wholly owned subsidiaries or
any of our employee benefit plans, or certain exempt persons), if, upon
consummation of the tender offer or exchange offer, the person or group would
beneficially own 30% or more of the combined voting power of our outstanding
shares of common stock and Class A common stock, all other stockholders will
have the right to purchase securities from us at a price that is less than their
fair market value. This would substantially reduce the value of the stock owned
by the acquiring person. Our board of directors can prevent the plan from
operating by approving the transaction and redeeming the rights. This gives our
board of directors significant power to approve or disapprove of the efforts of
a person or group to acquire a large interest in us. The rights plan exempts
acquisitions of common stock and Class A common stock by Mr. Charles J. Urstadt,
members of his family and certain of his affiliates.
Item 1B. Unresolved Staff Comments
Not Applicable
14
Item 2. Properties.
Core Properties
The following table sets forth information concerning each core property at
October 31, 2005. Except as otherwise noted, all core properties are 100% owned
by the Company.
Gross Number
Year Year Year Leasable of
Location Renovated Completed Acquired Sq Feet Acres Tenants Leased Principal Tenant
-------- --------- --------- -------- ------- ----- ------- ------ ----------------
Retail Properties:
Stamford, CT (1) 1997 1950 2002 369,000 13.6 36 95% Stop & Shop Supermarket
Springfield, MA 1996 1970 1970 323,000 26.0 31 96% Big Y Supermarket
Meriden, CT 2001 1989 1993 313,000 29.2 25 100% Shop Rite Supermarket
Stratford, CT 1988 1978 2005 269,000 29.0 15 97% Stop & Shop
Yorktown, NY 1997 1973 2005 200,000 16.4 8 100% Staples, Bed Bath & Beyond
Danbury, CT - 1989 1995 194,000 19.3 19 93% Christmas Tree Shops
White Plains, NY 1994 1958 2003 185,000 3.5 10 100% Toys "R" Us
Briarcliff Manor, NY (1) 2000 1978 1998 161,000 11.4 31 99% Stop & Shop Supermarket
Somers, NY - 2002 2003 135,000 26.0 27 100% Home Goods, New York
Sports Club
Carmel, NY 1999 1983 1995 126,000 19.0 18 100% Shop Rite Supermarket
Wayne, NJ 1992 1959 1992 102,000 9.0 45 99% A&P Supermarket
Newington, NH 1994 1975 1979 102,000 14.3 8 100% Linens `N Things, Outback
Darien, CT 1992 1955 1998 95,000 9.5 19 100% Shaw's Supermarket
Somers, NY - 1991 1999 78,000 10.8 32 94% Gristede's Supermarket
Orange, CT - 1990 2003 78,000 10.0 10 100% Trader Joe's Supermarket
Eastchester, NY (1) 2002 1978 1997 70,000 4.0 11 100% Food Emporium (Division
of A&P)
Ridgefield, CT 1999 1930 1998 51,000 2.1 43 94% Chico's
Rye, NY (4 buildings) - Various 2004 40,000 1.0 21 96% Cosi
Westport, CT - 1986 2003 38,000 3.0 10 100% Pier One Imports
Briarcliff Manor, NY - 1975 2001 38,000 1.0 19 100% Dress Barn
Danbury, CT - 1988 2002 33,000 2.7 6 100% Fortunoff, Sleepys'
Briarcliff Manor, NY 2001 1981 1999 29,000 4.0 3 100% Party Plus Warehouse
Somers, NY - 1987 1992 19,000 4.9 12 100% Putnam County Savings Bank
Office Properties:
Greenwich, CT - 1983 1998 19,000 1.0 2 100% Greenwich Hospital
Greenwich, CT - 1977 2001 11,000 0.4 3 66% Glenville Medical Center
Greenwich, CT - 1983 1993 10,000 0.2 2 100% Urstadt Biddle Properties
Greenwich, CT 1983 1953 1994 10,000 0.2 4 100% Prescott Investors
Greenwich, CT - 1978 2000 9,000 1.0 3 72% Insurance Center of
----- - Greenwich
3,107,000 473
========= ===
(1) The Company is the sole general partner in the partnership that owns this
property.
15
Non-Core Properties
In a prior year, the Board of Directors of the Company expanded and refined the
strategic objectives of the Company to concentrate the real estate portfolio
into one of primarily retail properties located in the Northeast and authorized
the sale of the Company's non-core properties in the normal course of business
over a period of several years given prevailing market conditions and the
characteristics of each property.
At October 31, 2005, the Company's non-core properties consisted of one retail
property containing 126,000 square feet and two industrial facilities with a
total of 447,000 square feet of GLA. The non-core properties collectively had 4
tenants and were 100% leased at October 31, 2005.
The following table sets forth information concerning each non-core property at
October 31, 2005. The non-core properties are 100% owned by the Company.
Year Year Year Rentable # of
Location Renovated Completed Acquired Square Feet Acres Tenants Leased Principal Tenant
-------- --------- --------- -------- ----------- ----- ------- ------ ----------------
Tempe, AZ 2000 1970 1970 126,000 8.6 2 100% Mervyn's, Inc.
Dallas, TX 1989 1970 1970 255,000 14.5 1 100% DaimlerChrysler Corporation
St. Louis, MO 2000 1970 1970 192,000 16.0 1 100% DaimlerChrysler Corporation
------- -
573,000 4
======= =
Total Portfolio 3,680,000 477
========= ===
Lease Expirations - Total Portfolio
The following table sets forth a summary schedule of the annual lease
expirations for the core and non-core properties for leases in place as of
October 31, 2005, assuming that none of the tenants exercise renewal or
cancellation options, if any, at or prior to the scheduled expirations.
Year of Lease Number of Leases Square Footage of Percentage of Total Leased
Expiration Expiring Expiring Leases Square Feet
---------- -------- --------------- -----------
2006 (1) 87 273,000 7.58%
2007 61 252,000 7.01%
2008 55 389,000 10.80%
2009 63 401,000 11.14%
2010 41 286,000 7.94%
2011 31 398,000 11.06%
2012 44 540,000 15.00%
2013 22 117,000 3.25%
2014 21 93,000 2.58%
2015 29 206,000 5.72%
Thereafter 23 645,000 17.92%
-- ------- ------
Total 477 3,600,000 100.00%
=== ========= =======
(1) Represents lease expirations from November 1, 2005 to October 31, 2006
and month-to-month leases.
16
Item 3. Legal Proceedings.
In the ordinary course of business, the Company is involved in legal
proceedings. However, there are no material legal proceedings presently pending
against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended October 31, 2005.
17
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.
(a) Market Information
Shares of Common stock and Class A Common stock of the Company are traded on the
New York Stock Exchange under the symbols "UBP" and "UBA", respectively. The
following table sets forth the high and low closing sales prices for the
Company's Common stock and Class A Common stock during the fiscal years ended
October 31, 2005 and 2004 as reported on the New York Stock Exchange:
Fiscal Year Ended Fiscal Year Ended
Common shares: October 31, 2005 October 31, 2004
- -------------- ---------------- ------------------
Low High Low High
--- ---- --- ----
First Quarter $14.80 $16.46 $13.15 $14.00
Second Quarter $14.71 $16.31 $13.00 $15.10
Third Quarter $15.09 $17.59 $12.91 $14.70
Fourth Quarter $15.75 $17.66 $13.75 $15.85
Fiscal Year Ended Fiscal Year Ended
Class A Common shares: October 31, 2005 October 31, 2004
---------------- -----------------
Low High Low High
--- ---- --- ----
First Quarter $15.72 $17.76 $13.63 $14.94
Second Quarter $14.26 $16.64 $13.88 $16.60
Third Quarter $15.05 $18.75 $12.60 $15.55
Fourth Quarter $14.75 $18.72 $13.75 $16.81
(b) Approximate Number of Equity Security Holders
At January 11, 2006 (latest date available), there were 1,280 shareholders of
record of the Company's Common stock and 1,291 shareholders of record of the
Class A Common stock.
(c) Dividends Declared on Common stock and Class A Common stock and Tax Status
The following tables set forth the dividends declared per Common share and Class
A Common share and tax status for Federal income tax purposes of the dividends
paid during the fiscal years ended October 31, 2005 and 2004:
Dividends Paid Per: Common Share Class A Common Share
-------------------------- ------------------------------------
Gross Gross
Dividend Ordinary Non taxable Dividend Ordinary Non taxable
Dividend Payment Date Per Share Income Portion Per Share Income Portion
- --------------------- --------- ------ ------- --------- ------ -------
January 17, 2005 $.20 $.171 $.029 $.22 $.188 $.032
April 15, 2005 $.20 $.171 $.029 $.22 $.188 $.032
July 15, 2005 $.20 $.171 $.029 $.22 $.188 $.032
October 21, 2005 $.20 $.171 $.029 $.22 $.188 $.032
----- ----- ----- ----- ----- -----
$.80 $.684 $.116 $.88 $.752 $.128
===== ===== ===== ==== ===== =====
18
Dividends Paid Per: Common Share Class A Common Share
--------------------------- -----------------------------------
Gross Gross
Dividend Ordinary Non taxable Dividend Ordinary Non taxable
Dividend Payment Date Per Share Income Portion Per Share Income Portion
- --------------------- ---------- ------ ------- --------- ------ -------
January 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
April 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
July 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
October 15, 2004 $.195 $.178 $.017 $.215 $.196 $.019
----- ----- ----- ----- ----- -----
$ .78 $.712 $.068 $ .86 $.784 $.076
===== ===== ===== ===== ===== =====
The Company has paid quarterly dividends since it commenced operations as a real
estate investment trust in 1969. During the fiscal year ended October 31, 2005,
the Company made distributions to stockholders aggregating $.80 per Common share
and $.88 per Class A Common share. On December 14, 2005, the Company's Board of
Directors approved the payment of a quarterly dividend payable January 20, 2006
to stockholders of record on January 6, 2006. The quarterly dividend rates were
declared in the amounts of $.2025 per Common share and $.2250 per Class A
Common share.
Although the Company intends to continue to declare quarterly dividends on its
Common shares and Class A Common shares, no assurances can be made as to the
amounts of any future dividends. The declaration of any future dividends by the
Company is within the discretion of the Board of Directors and will be dependent
upon, among other things, the earnings, financial condition and capital
requirements of the Company, as well as any other factors deemed relevant by the
Board of Directors. Two principal factors in determining the amounts of
dividends are (i) the requirement of the Internal Revenue Code that a real
estate investment trust distribute to shareholders at least 90% of its real
estate investment trust taxable income, and (ii) the amount of the Company's
available cash.
Each share of Common Stock entitles the holder to one vote. Each share of Class
A Common Stock entitles the holder to 1/20 of one vote per share. Each share of
Common Stock and Class A Common Stock have identical rights with respect to
dividends except that each share of Class A Common Stock will receive not less
than 110% of the regular quarterly dividends paid on each share of Common Stock.
The Company has a Dividend Reinvestment and Share Purchase Plan ("DRIP") that
allows shareholders to acquire additional shares of Common Stock and Class A
Common Stock by automatically reinvesting dividends. Shares are acquired
pursuant to the DRIP at a price equal to the higher of 95% of the market price
of such shares on the dividend payment date or 100% of the average of the daily
high and low sales prices for the five trading days ending on the day of
purchase without payment of any brokerage commission or service charge. As of
October 31, 2005, 909,483 shares of Common Stock and 140,539 shares of Class A
Common Stock have been issued under the DRIP.
(d) Recent Sales of Unregistered Securities
None
(e) Purchases of Equity Securities by the Issuer and Affiliated Purchasers (1)
(c) Total Number
of Shares (d) Maximum
(a) Total Purchased as Part Number of Shares
Number of (b)Average of Publicly that May Yet Be
Shares Price Paid Announced Purchased Under
Purchased Per Share Programs the Program
--------- --------- -------- -----------
August 1-31, 2005 - - - -
September 1-30, 2005 - - - -
October 1-31, 2005:
Class A Common Stock 41,400 $15.13 41,400 -
Common Stock 3,600 $16.18 3,600 -
------ ------
Total-All Shares 45,000 45,000 455,000 (2)
19
(1)On October 7, 2005 the Company publicly announced that its Board of Directors
approved a share repurchase program ("Program") of up to 500,000 shares, in the
aggregate, of the Company's Common and Class A Common Stock. The Program does
not have a specific expiration date and may be discontinued at any time. There
is no assurance that the Company will repurchase the full amount of shares
authorized.
(2) Any combination of either Common Stock or Class A Common Stock not exceeding
455,000 shares, in the aggregate, may yet be purchased under the Program.
20
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended October 31, 2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Balance Sheet Data:
Total Assets $464,439 $394,917 $392,639 $353,562 $218,292
======== ======== ======== ======== ========
Mortgage Notes Payable $111,786 $107,443 $104,588 $106,429 $47,115
======== ======== ======== ======== =======
Redeemable Preferred Stock $52,747 $52,747 $52,747 $14,341 $33,462
======= ======= ======= ======= =======
Operating Data:
Total Revenues $69,964 $61,880 $ 56,302 $39,807 $31,106
======= ======= ======== ======= =======
Total Operating Expenses and Minority Interest $46,468 $39,911 $ 37,531 $26,602 $22,502
======= ======= ======== ======= =======
Income from Continuing Operations before Discontinued
Operations $23,496 $21,969 $ 18,771 $13,205 $8,604
======= ======= ======== ======= ======
Per Share Data:
Net Income from Continuing Operations - Basic:
Class A Common Stock $.68 $ .71 $.67 $.82 $ .93
Common Stock $.62 $ .65 $.61 $.73 $ .83
Net Income from Continuing Operations - Diluted:
Class A Common Stock $.66 $.71 $.66 $.80 $.89
Common Stock $.60 $.64 $.60 $.71 $.80
Cash Dividends on:
Class A Common Stock $.88 $.86 $.84 $.82 $.80
Common Stock $.80 $.78 $.76 $.74 $.72
---- ---- ---- ---- ----
Total $1.68 $1.64 $1.60 $1.56 $1.52
===== ===== ===== ===== =====
Other Data:
Year Ended October 31, 2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Net Cash Flow Provided by (Used in):
Operating Activities $35,505 $30,744 $ 31,176 $18,532 $21,308
======= ======= ======== ======= =======
Investing Activities $(61,348) $(2,416) $(69,818) $(64,960) $(11,394)
========= ======== ========= ========= =========
Financing Activities $26,397 $(24,837) $ 14,749 $59,023 $22,040
======= ========= ======== ======= =======
Funds from Operations (Note (1) ) $29,355 $29,813 $27,964 $24,144 $14,611
======= ======= ======= ======= =======
Note
(1): The Company has adopted the definition of Funds from Operations (FFO)
suggested by the National Association of Real Estate Investment Trusts (NAREIT)
and defines FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of properties
plus real estate related depreciation and amortization and after adjustments for
unconsolidated joint ventures. For a reconciliation of net income and FFO, see
Management's Discussion and Analysis on page 22. FFO does not represent cash
flows from operating activities in accordance with generally accepted accounting
principles and should not be considered an alternative to net income as an
indicator of the Company's operating performance. The Company considers FFO a
meaningful, additional measure of operating performance because it primarily
excludes the assumption that the value of its real estate assets diminishes
predictably over time and industry analysts have accepted it as a performance
measure. FFO is presented to assist investors in analyzing the performance of
the Company. It is helpful as it excludes various items included in net income
that are not indicative of the Company's operating performance. However,
comparison of the Company's presentation of FFO, using the NAREIT definition, to
similarly titled measures for other REITs may not necessarily be meaningful due
to possible differences in the application of the NAREIT definition used by such
REITs. For a further discussion of FFO, see Management's Discussion and Analysis
on page 22.
21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this report.
Forward Looking Statements
This Item 7 includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of historical facts, included
in this Item 7 that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), business strategies, expansion and growth of the
Company's operations and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate. Such statements are subject to a number of assumptions, risks
and uncertainties, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Many of these risks are discussed in Item 1A. Risk Factors. Any
such statements are not guarantees of future performance and actual results or
developments may differ materially from those anticipated in the forward-looking
statements.
Executive Summary
The Company, a REIT, is a fully integrated, self-administered real estate
company engaged in the acquisition, ownership and management of commercial real
estate, primarily neighborhood and community shopping centers in the
northeastern part of the United States. Other real estate assets include office
and retail buildings and industrial properties. The Company's major tenants
include supermarket chains and other retailers who sell basic necessities. At
October 31, 2005, the Company owned or had controlling interests in 34
properties containing a total of 3.7 million square feet of GLA of which
approximately 98% was leased.
The Company derives substantially all of its revenues from rents and operating
expense reimbursements received pursuant to long-term leases and focuses ints
investment activities on community and neighborhood shopping centers, anchored
principally by regional supermarket chains. The Company believes, because of the
need of consumers to purchase food and other staple goods and services generally
available at supermarket-anchored shopping centers, that the nature of its
investments provide for relatively stable revenue flows even during difficult
economic times.
The Company focuses on increasing cash flow, and consequently the value of its
properties and seeks continued growth through strategic re-leasing, renovations
and expansion of its existing properties and selective acquisition of income
producing properties, primarily neighborhood and community shopping centers in
the northeastern part of the United States.
Key elements of the Company's growth strategies and operating policies are to:
|X| Acquire neighborhood and community shopping centers in the
northeastern part of the United States with a concentration in
Fairfield County, Connecticut, and Westchester and Putnam
Counties, New York
|X| Hold core properties for long-term investment and enhance their
value through regular maintenance, periodic renovation and capital
improvement
|X| Selectively dispose of non-core assets and re-deploy the proceeds
into properties located in the Company's preferred region
|X| Increase property values by aggressively marketing available GLA
and renewing existing leases
|X| Renovate, reconfigure or expand existing properties to meet the
needs of existing or new tenants
|X| Negotiate and sign leases which provide for regular or fixed
contractual increases to minimum rents
|X| Control property operating and administrative costs
22
Critical Accounting Policies
Critical accounting policies are those that are both important to the
presentation of the Company's financial condition and results of operations and
require management's most difficult, complex or subjective judgments. Set forth
below is a summary of the accounting policies that management believes are
critical to the preparation of the consolidated financial statements. This
summary should be read in conjunction with the more complete discussion of the
Company's accounting policies included in Note 1 to the consolidated financial
statements of the Company.
Revenue Recognition
The Company records base rents on a straight-line basis over the term of each
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases is included in tenant receivables on the accompanying
balance sheets. Most leases contain provisions that require tenants to reimburse
a pro-rata share of real estate taxes and certain common area expenses.
Adjustments are also made throughout the year to tenant receivables and the
related cost recovery income based upon the Company's best estimate of the final
amounts to be billed and collected.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is established based on a quarterly analysis
of the risk of loss on specific accounts. The analysis places particular
emphasis on past-due accounts and considers information such as the nature and
age of the receivables, the payment history of the tenants or other debtors, the
financial condition of the tenants and any guarantors and management's
assessment of their ability to meet their lease obligations, the basis for any
disputes and the status of related negotiations, among other things.
Management's estimates of the required allowance is subject to revision as these
factors change and is sensitive to the effects of economic and market conditions
on tenants, particularly those at retail centers. Estimates are used to
establish reimbursements from tenants for common area maintenance, real estate
tax and insurance costs. The Company analyzes the balance of its estimated
accounts receivable for real estate taxes, common area maintenance and insurance
for each of its properties by comparing actual recoveries versus actual expenses
and any actual write-offs. Based on its analysis, the Company may record an
additional amount in its allowance for doubtful accounts related to these items.
It is also the Company's policy to maintain an allowance of approximately 10% of
the deferred straight-line rents receivable balance for future tenant credit
losses.
Real Estate
Land, buildings, property improvements, furniture/fixtures and tenant
improvements are recorded at cost. Expenditures for maintenance and repairs are
charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset, are capitalized and depreciated over
their estimated useful lives.
The amounts to be capitalized as a result of an acquisition and the periods over
which the assets are depreciated or amortized are determined based on estimates
as to fair value and the allocation of various costs to the individual assets.
The Company allocates the cost of an acquisition based upon the estimated fair
value of the net assets acquired. The Company also estimates the fair value of
intangibles related to its acquisitions. The valuation of the fair value of
intangibles involves estimates related to market conditions, probability of
lease renewals and the current market value of in-place leases. This market
value is determined by considering factors such as the tenant's industry,
location within the property and competition in the specific region in which the
property operates. Differences in the amount attributed to the intangible assets
can be significant based upon the assumptions made in calculating these
estimates.
The Company is required to make subjective assessments as to the useful life of
its properties for purposes of determining the amount of depreciation. These
assessments have a direct impact on the Company's net income.
Properties are depreciated using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives are as follows:
Buildings 30-40 years
Property Improvements 10-20 years
Furniture/Fixtures 3-10 years
Tenant Improvements Shorter of lease term or their useful life
23
Asset Impairment
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties and mortgage notes receivable may be
impaired. A property value is considered impaired when management's estimate of
current and projected operating cash flows (undiscounted and without interest)
of the property over its remaining useful life is less than the net carrying
value of the property. Such cash flow projections consider factors such as
expected future operating income, trends and prospects, as well as the effects
of demand, competition and other factors. To the extent impairment has occurred,
the loss is measured as the excess of the net carrying amount of the property
over the fair value of the asset. Changes in estimated future cash flows due to
changes in the Company's plans or market and economic conditions could result in
recognition of impairment losses which could be substantial. Management does not
believe that the value of any of its rental properties or mortgage notes
receivable is impaired at October 31, 2005.
Liquidity and Capital Resources
At October 31, 2005, the Company had unrestricted cash and cash equivalents of
$26.5 million compared to $25.9 million in 2004. The Company's sources of
liquidity and capital resources include its cash and cash equivalents, proceeds
from bank borrowings and long-term mortgage debt, capital financings and sales
of real estate investments. Payments of expenses related to real estate
operations, debt service, management and professional fees, and dividend
requirements place demands on the Company's short-term liquidity.
Cash Flows
The Company expects to meet its short-term liquidity requirements primarily by
generating net cash from the operations of its properties. The Company believes
that its net cash provided by operations will be sufficient to fund its
short-term liquidity requirements for fiscal 2006 and to meet its dividend
requirements necessary to maintain its REIT status. In fiscal 2005, 2004 and
2003, net cash flow provided by operations amounted to $35.5 million, $30.7
million and $31.2 million, respectively. Cash dividends paid on common and
preferred shares increased to $29.4 million in 2005 compared to $26.3 million in
2004 and $23.5 million in 2003. The Company expects to continue paying regular
dividends to its stockholders. These dividends will be paid from operating cash
flows which are expected to increase due to property acquisitions and growth in
operating income in the existing portfolio and from other sources. The Company
derives substantially all of its revenues from tenants under existing leases at
its properties. The Company's operating cash flow therefore depends on the rents
that it is able to charge to its tenants, and the ability of its tenants to make
rental payments. The Company believes that the nature of the properties in which
it typically invests - primarily grocery-anchored neighborhood and community
shopping centers - provides a more stable revenue flow in uncertain economic
times, in that consumers still need to purchase basic staples and convenience
items. However, even in the geographic areas in which the Company owns
properties, general economic downturns may adversely impact the ability of the
Company's tenants to make lease payments and the Company's ability to re-lease
space as leases expire. In either of these cases, the Company's cash flow could
be adversely affected.
Net Cash Flow From:
Operating Activities
Net cash flows provided by operating activities amounted to $35.5 million in
2005, compared to $30.7 million in 2004 and $31.2 million in 2003. The changes
in operating cash flows were primarily due to increases in the net operating
results generated from the Company's core properties and operating cash flows
from new properties acquired during those periods.
Investing Activities
Net cash flows used in investing activities were $61.3 million in 2005, $2.4
million in 2004 and $70.0 million in 2003. The net cash flows in each of these
years were principally due to the acquisition of properties consistent with the
Company's strategic plan to acquire properties in the northeast. The Company
acquired two shopping centers in 2005,and four retail properties in both 2004
and 2003. In 2005, the Company sold two properties. Sale proceeds were used to
purchase properties in the northeast. In 2003, the Company sold investments in
marketable securities to purchse real estate properties.
Financing Activities
Net cash flows provided by financing activities amounted to $26.4 million in
2005 and $14.7 million in 2003. Net cash flows used in financing activities in
2004 were $24.8 million. The Company received net proceeds of $59.4 million in
2005 and $38.4 million in 2003 from sales of preferred stock. In fiscal 2005,
the Company borrowed $19.5 million under its bank lines of credit, which amounts
were fully repaid during the year. The Company makes quarterly distributions to
its shareholders which totaled $29.4 million in 2005, $26.3 million in 2004 and
$23.5 million in 2003.
24
Capital Resources
The Company expects to fund its long-term liquidity requirements such as
property acquisitions, repayment of indebtedness and capital expenditures
through other long-term indebtedness (including indebtedness assumed in
acquisitions), proceeds from sales of properties and/or the issuance of equity
securities. The Company believes that these sources of capital will continue to
be available to it in the future to fund its long-term capital needs; however,
there are certain factors that may have a material adverse effect on its access
to capital sources. The Company's ability to incur additional debt is dependent
upon its existing leverage, the value of its unencumbered assets and borrowing
limitations imposed by existing lenders. The Company's ability to raise funds
through sales of equity securities is dependent on, among other things, general
market conditions for REITs, market perceptions about the Company and its stock
price in the market. The Company's ability to sell properties in the future to
raise cash will be dependent upon market conditions at the time of sale.
Financings and Debt
On October 7, 2005 the Company publicly announced that its Board of Directors
approved a share repurchase program of up to 500,000 shares, in the aggregate,
of the Company's Common and Class A Common Stock. The program does not have a
specific expiration date and may be discontinued at any time. There is no
assurance that the Company will repurchase the full amount of shares authorized.
In April 2005, the Company sold 1,000,000 shares of 7.5% Series D Senior
Cumulative Preferred Stock ("Series D Preferred Stock") in a public offering for
net proceeds of approximately $24 million. In May 2005, the Company sold an
additional 650,000 shares of Series D Preferred Stock in a public offering for
net proceeds of $15.8 million and in June 2005, the Company sold an additional
800,000 shares of Series D Preferred Stock in a public offering for net proceeds
of $19.6 million. The Series D Preferred Stock has no stated maturity and is not
convertible into other securities of the Company. On or after April 12, 2010,
the Series D Preferred Stock may be redeemed by the Company, at its option, at a
redemption price of $25 per share plus accrued and unpaid dividends.
The Company utilized a portion of the net proceeds from the preferred stock
sales to repay all of its then outstanding secured and unsecured revolving
credit line indebtedness of $19.5 million. The Company also used approximately
$20 million of the net proceeds to fund the cash portion of the purchase price
of Staples Plaza acquired in June 2005. The balance of the net proceeds is
expected to be used to acquire other income producing properties and to fund
renovations on, or capital improvements to, existing properties, including
tenant improvements and for working capital.
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements. At October 31, 2005, the Company did
not have any variable rate debt outstanding.
Mortgage notes payable of $111.8 million consist of fixed rate mortgage loan
indebtedness with a weighted average interest rate of 7.34% at October 31, 2005.
The mortgage loans are secured by seventeen properties with a net book value of
$192.5 million and have fixed rates of interest ranging from 5.75% to 8.125%. In
June 2005, the Company fully repaid a mortgage note in the principal amount of
$1.8 million. In connection with the acquisition of Staples Plaza, the Company
assumed an existing first mortgage loan on the property. The Company recorded
the mortgage loan at its estimated fair value which approximated $8.5 million.
The mortgage loan matures in 2008 and has an effective interest rate of 5.75%.
The Company expects to refinance most of its mortgage loans, at or prior to
scheduled maturity, through replacement mortgage loans. The ability to do so,
however, is dependent upon various factors, including the income level of the
properties, interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such refinancings can
be achieved.
In April 2005, the Company entered into a secured revolving credit facility with
a commercial bank which provides for borrowings of up to $30 million for a three
year period. The secured revolving credit facility is collateralized by two
properties having a net book value of $27.7 million at October 31, 2005. This
credit line replaced a secured revolving credit line of $17.5 million that was
scheduled to expire in October 2005. During fiscal 2005, the Company borrowed
$17.5 million under the credit line to complete the acquisition of The Dock.
25
The borrowings were fully repaid from proceeds of the Company's new issue of
Series D Preferred Stock. There were no borrowings outstanding on the secured
revolving credit facility at October 31, 2005. The Company also has an unsecured
revolving line of credit with the same bank which was increased from $20 million
to $30 million in June 2005. The unsecured credit line expires in January 2006.
The Company is in the process of extending the unsecured credit line for an
additional one year period. During fiscal 2005, the Company borrowed $2 million
under this line of credit. The funds were used for working capital purposes and
fully repaid during the year. At October 31, 2005, there were no borrowings
outstanding on this line of credit. Extensions of credit under the unsecured
credit line are at the bank's discretion and subject to the bank's satisfaction
of certain conditions which must be met by the Company.
Both credit lines are available to finance the acquisition, management and/or
development of commercial real estate, refinance indebtedness and for working
capital purposes.
Contractual Obligations
The Company's contractual payment obligations as of October 31, 2005, were as
follows (amounts in thousands):
Payments Due by Period
- ------------------------------------------------------------------------------------------------------------------------
Total 2006 2007 2008 2009 2010 Thereafter
----- ---- ---- ---- ---- ---- ----------
Mortgage notes payable $111,786 $7,486 $11,628 $61,256 $17,755 $5,499 $8,162
Tenant obligations* 436 436 - - - - -
-------- ------ ------- ------- ------- ------ ------
Total Contractual Obligations $112,222 $7,922 $11,628 $61,256 $17,755 $5,499 $8,162
======== ====== ======= ======= ======= ====== ======
*Committed tenant-related obligations based on executed leases as of October 31,
2005.
The Company has various standing or renewable service contracts with vendors
related to its property management. In addition, the Company also has certain
other utility contracts entered into in the ordinary course of business which
may extend beyond one year, which vary based on usage. These contracts include
terms that provide for cancellation with insignificant or no cancellation
penalties. Contract terms are generally one year or less.
Off-Balance Sheet Arrangements
During the years ended October 31, 2005 and 2004, the Company did not have any
material off-balance sheet arrangements.
Capital Expenditures
The Company invests in its existing properties and regularly incurs capital
expenditures in the ordinary course of business to maintain its properties. The
Company believes that such expenditures enhance the competitiveness of its
properties. In the year ended October 31, 2005, the Company incurred
approximately $5.3 million for capital expenditures for property improvements,
tenant improvements and leasing commissions. The amounts of these expenditures
can vary significantly depending on tenant negotiations, market conditions and
rental rates. The Company expects to incur approximately $3 million for
anticipated capital improvements and leasing costs in fiscal 2006. These
expenditures are expected to be funded from operating cash flows or borrowings.
Acquisitions
The Company seeks to acquire properties which are primarily shopping centers
located in the northeastern part of the United States with a concentration in
Fairfield County, Connecticut and Westchester and Putnam Counties, New York.
The Company was the sole general partner in a limited partnership that owned the
Arcadian Shopping Center in Briarcliff Manor, New York. In July 2005, a
wholly-owned subsidiary of the Company acquired the remaining limited partner
interests in the partnership for a purchase price of $2.1 million. The Company
now controls 100% of the property.
26
In June 2005, the Company purchased a 200,000 square foot shopping center in
Yorktown, New York. The purchase price was $28.5 million, including the
assumption of a first mortgage loan and closing costs of approximately $113,000.
The cash portion of the purchase price was funded from a portion of the proceeds
from the Company's sales of the Series D Preferred Stock.
In January 2005, the Company acquired The Dock, a 269,000 square foot shopping
center located in Stratford, Connecticut for $51.1 million, including closing
costs of approximately $800,000. The acquisition was funded with cash of
approximately $23.1 million, net proceeds of $9.75 million from the sale of
property (see discussion below) and borrowings of $17.5 million under the
Company's secured line of credit. The borrowings were repaid from the proceeds
of the sale of the Series D Preferred Stock in May 2005.
During the fourth quarter of fiscal 2005, the Company terminated a contract for
the purchase of a retail property for a purchase price of $6.7 million
In fiscal 2004, the Company acquired four retail properties totaling 40,000
square feet of leasable space, for a total purchase price of $11.0 million. In
connection with the acquisition of three of the properties, the Company assumed
mortgage loans totaling $4.7 million.
Sales
In November 2004, the Company sold its Farmingdale, New York property for a sale
price of $9.75 million. The proceeds were used to complete the acquisition of
The Dock in January 2005. The Company recorded a gain on the sale of
approximately $5.6 million in fiscal 2005. The property was classified as held
for sale at October 31, 2004.
In June 2005, the Company sold an office building in Southfield, Michigan for a
sale price of $9.2 million. The Company recorded a gain on the sale of $1.4
million in fiscal 2005.
Non-Core Assets
In a prior year, the Company's Board of Directors expanded and refined the
strategic objectives of the Company to refocus its real estate portfolio into
one of self-managed retail properties located in the northeast and authorized
the sale of the Company's non-core properties in the normal course of business
over a period of several years. The non-core properties consist of two
distribution service facilities and one retail property (all of which are
located outside of the northeast region of the United States). The Company
intends to sell its non-core properties as opportunities become available. The
Company's ability to generate cash from asset sales is dependent upon market
conditions and will necessarily be limited if market conditions make such sales
unattractive. During fiscal 2005, the Company sold a non-core office property
located in Southfield, Michigan for a sales price of $9.2 million and realized
a gain on sale of the property of $1.4 million. At October 31, 2005, the three
remaining non-core properties have a net book value of approximately $3.0
million.
Funds from Operations
The Company considers Funds from Operations ("FFO") to be an additional measure
of an equity REIT's operating performance. The Company reports FFO in addition
to its net income applicable to common stockholders and net cash provided by
operating activities. Management has adopted the definition suggested by The
National Association of Real Estate Investment Trusts ("NAREIT") and defines FFO
to mean net income (computed in accordance with generally accepted accounting
principles ("GAAP") excluding gains (or losses) from sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated joint ventures.
Management considers FFO a meaningful, additional measure of operating
performance because it primarily excludes the assumption that the value of its
real estate assets diminishes predictably over time and industry analysts have
accepted it as a performance measure. FFO is presented to assist investors in
analyzing the performance of the Company. It is helpful as it excludes various
items included in net income that are not indicative of the Company's operating
performance, such as gains (or losses) from sales of property and deprecation
and amortization. However, FFO:
|X| does not represent cash flows from operating activities in accordance
with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events in the determination of net income); and
|X| should not be considered an alternative to net income as an indication
of the Company's performance.
27
FFO, as defined by us may not be comparable to similarly titled items reported
by other real estate investment trusts due to possible differences in the
application of the NAREIT definition used by such REITs. The table below
provides a reconciliation of net income applicable to Common and Class A Common
Stockholders in accordance with GAAP to FFO for each of the three years in the
period ended October 31, 2005 (amounts in thousands).
Year Ended October 31,
2005 2004 2003
---- ---- ----
Net Income Applicable to Common and Class A Common Stockholders $23,976 $ 18,566 $ 17,576
Plus: Real property depreciation 9,164 8,082 7,148
Amortization of tenant improvements and allowances 2,325 1,962 2,088
Amortization of deferred leasing costs 565 497 440
Depreciation and amortization on discontinued operations 345 706 712
Less: Gains on sales of properties (7,020) - -
------- ------- -------
Funds from Operations Applicable to Common and Class A Common Stockholders $29,355 $29,813 $27,964
======= ======= =======
Net Cash Provided by (Used in):
Operating Activities $ 35,505 $ 30,744 $ 31,176
========= ======== ========
Investing Activities $(61,348) $ (2,416) $(69,818)
========= ======== ========
Financing Activities $ 26,397 $ (24,837) $ 14,749
========= ======== ========
FFO amounted to $29.4 million in fiscal 2005 compared to $29.8 million in fiscal
2004. The change in FFO is attributable to: a) an increase in property operating
income and recent property acquisitions which increased operating rents and net
operating income; b) higher general and administrative expenses and c) the
effect of lower yielding returns on the temporary investment of the proceeds
remaining from the sales of the Company's new issue of Series D Preferred Stock
in fiscal 2005. See discussion which follows.
28
Results of Operations
Fiscal 2005 vs. Fiscal 2004
Revenues
Rental revenues from base rents increased 11.4% to $52.1 million in the year
ended October 31, 2005, as compared to $46.8 million in fiscal 2004.
The net change in rentals resulted primary from: (i) the additional base rents
from properties acquired during 2005 and 2004 which increased base rents
incrementally by $4.7 million in fiscal 2005 and (ii) an increase of $631,000
principally from new leasing and renewals of expiring leases at the Company's
core properties and generally at higher base rental rates compared to the
expiring rental rates. During fiscal 2005, the Company leased or renewed 222,000
square feet of gross leasable area ("GLA") at its core properties compared to
284,000 square feet in fiscal 2004. The Company also extended a triple net lease
on its 255,000 square foot industrial property in Dallas Texas for an additional
five year term at approximately the same effective rent as the existing lease on
the property. At October 31, 2005, the Company's core properties were 98%
leased, a decrease of less than 1% from the end of fiscal 2004. The Company has
leases totaling less than 8% of its core property GLA scheduled to expire in
fiscal 2006.
Recoveries from tenants (which represent reimbursements from tenants for
property operating expenses and property taxes) increased 20.9% to $16.5 million
in fiscal 2005 compared to $13.7 million in fiscal 2004. The increase in
recoveries from tenants is attributable to new properties in fiscal 2005 (which
increased this component of revenue by $1.7 million) and an additional $1.2
million from properties owned in both years from higher operating expenses and
real estate tax expenses in 2005 at most of the properties and higher overall
tenant recovery rates on operating expenses and real estate taxes.
The Company's single largest real estate investment is the Ridgeway Shopping
Center located in Stamford, Connecticut (which is owned by a consolidated joint
venture in which the Company has a 90% controlling interest). Ridgeway's
revenues represented approximately 15.1% or $10.6 million of total consolidated
revenues in fiscal 2005 compared to 15.4% or $10.2 million in fiscal 2004. The
property was 95% leased at October 31, 2005. No other property in the Company's
portfolio comprised more than 10% of the Company's consolidated revenues in the
year ended October 31, 2005.
The Company recorded lease termination payments in satisfaction of former tenant
lease obligations of $253,000 in fiscal 2005, compared to $577,000 in 2004.
Fiscal 2004's amounts included a payment of $312,000 received in settlement of a
tenant bankruptcy.
Interest and other income increased by $231,000 in fiscal 2005 from higher
interest and dividend income from the temporary reinvestment into short-term
liquid investments of a portion of the proceeds from the Company's recent sales
of Series D Preferred Stock. This component of income also includes gains on
sales of securities which totaled $70,000 in fiscal 2005.
Expenses
Property operating expenses increased 18.1% to $10.9 million in the year ended
October 31, 2005 compared to $9.2 million in fiscal 2004. The increase in
operating expenses in fiscal 2005 reflects the incremental expense from recent
property acquisitions which added additional operating expenses of $1.1 million
in fiscal 2005. Operating expenses for properties owned in both periods
increased by $626,000 principally due to higher snow removal and repairs and
maintenance costs in fiscal 2005.
Property taxes increased 15.2% to $9.2 million in fiscal 2005 compared to $8.0
million in fiscal 2004. Property taxes from recently acquired properties
increased this component of expenses by $884,000 in fiscal year 2005. Property
taxes for properties owned in both fiscal 2005 and 2004 increased by $336,000
from higher real estate tax assessment rates at several of the Company's
properties during fiscal 2005. The Company anticipates that property tax
assessments will continue to increase in the near term. However, the Company
will continue to challenge these higher assessments when warranted.
29
Interest expense increased $389,000 in fiscal 2005 principally from the addition
of an $8.5 million mortgage note assumed in connection with the acquisition of
Staples Plaza in fiscal 2005 and mortgages totaling $4.7 million assumed in the
Rye Properties acquisitions in fiscal 2004. Interest expense also increased this
year from short-term borrowings of $19.5 million on the Company's secured and
unsecured revolving credit lines. Borrowings of $17.5 million were used to
complete the acquisition of a property earlier in the year. The borrowings were
fully repaid during the second quarter of fiscal 2005.
Depreciation and amortization expense increased by $1.5 million in fiscal 2005.
The increase is principally from property acquisitions in fiscal 2005 which
increased this component of expense by $1.1 million in fiscal 2005.
General and administrative expenses increased by $1.7 million in fiscal 2005
from higher compensation costs from an increase in the number of employees of
the Company and higher stock compensation charges, which increased compensation
by approximately $600,000 in fiscal 2005. The Company also recorded a charge of
approximately $300,000 to reflect a deferred compensation arrangement at fair
value during the year. Additionally, the Company incurred costs of approximately
$678,000 in connection with the its internal controls assessment required
by Section 404 of the Sarbanes-Oxley Act.
Discontinued Operations
During fiscal 2005, the Company sold a shopping center in Farmingdale, New York
for $9.75 million and an office building in Southfield, Michigan for $9.175
million. The shopping center was classified as a property held for sale at the
end of fiscal 2004. Accordingly, the operating results for these properties have
been reclassified as discontinued operations in the accompanying consolidated
statements of income for the three years ended October 31, 2005.
In connection with the sales of the properties, the Company recorded gains on
sales of properties of $7.0 million in fiscal 2005. The Company used the
proceeds of sales to complete the purchase of core properties in fiscal 2005.
Revenues from discontinued operations were $1.7 million, $4.1 million and $4.1
million for the years ended October 31, 2005, 2004 and 2003, respectively.
Fiscal 2004 vs. Fiscal 2003
Revenues
Base rents increased 8.8% to $46.8 million in fiscal 2004 from $43.0 million in
fiscal 2003. The increase in base rents reflected the additional base rents from
four properties acquired in 2003. The acquisitions of these properties increased
base rents incrementally by $3.2 million in fiscal 2004. In addition, base rents
increased by $556,000 in fiscal 2004 from the effect of new leasing and renewals
of expiring leases at generally higher base rental rates.
Recoveries from tenants (which represent reimbursements from tenants for
property operating expenses and property taxes) increased 12.4% in fiscal 2004
compared to fiscal 2003. The increase in recoveries from tenants included
amounts applicable to properties acquired in fiscal 2003 which increased this
component of revenues by $888,000 in fiscal 2004. Recoveries from tenants for
properties owned in both 2004 and 2003 increased by $624,000 due to higher
tenant recovery rates and property tax recoveries.
In fiscal 2004, the Company leased or renewed approximately 284,000 square feet
of space or 10.5% of total core property GLA. At October 31, 2004, the Company's
core properties were 99% leased, an increase of approximately 2% from the
beginning of the year.
The Company's non-core office building property in Southfield, Michigan was
approximately 30% vacant at October 31, 2004. The office leasing market in this
region of the country continued to be weak and the Company aggressively marketed
vacancies at the property. A tenant who leased 41,000 square feet of space in
the building did not renew its lease upon expiration in December 2004. The
office building was subsequently sold in fiscal 2005.
30
Lease termination income of $577,000 in fiscal 2004 consisted of a lease
cancellation payment of $265,000 from a tenant who terminated during the year
and a payment of $312,000 received in settlement of a bankruptcy action of a
former tenant.
Interest income decreased from the prior year from the utilization of cash to
purchase properties in both fiscal 2004 and 2003 and the repayment of a $1.2
million note receivable in fiscal 2003.
Expenses
Property operating expenses increased 2.7 % to $9.2 million in fiscal 2004 from
$9.0 million in 2003. Property expenses of acquired properties increased
operating expenses by $557,000 in fiscal 2004. Operating expenses for properties
owned in both 2004 and 2003 decreased by $342,000 from lower snow removal costs
and repairs and maintenance expenses.
Property taxes increased to $8.0 million or 13.7% in fiscal 2004 compared to
$7.1 million in fiscal 2003. New properties increased property taxes by $628,000
in that year. Property taxes for properties owned in both years increased by
$365,000 from higher real estate tax assessment rates at several of the
Company's properties.
Depreciation and amortization expense increased $865,000 in fiscal 2004, from
additional depreciation on recent property acquisitions.
General and administrative expense increased by $262,000 in fiscal 2004, due
primarily to higher compensation expense.
Inflation
The Company's long-term leases contain provisions to mitigate the adverse impact
of inflation on its operating results. Such provisions include clauses entitling
the Company to receive (a) scheduled base rent increases and (b) percentage
rents based upon tenants' gross sales, which generally increase as prices rise.
In addition, many of the Company's non-anchor leases are for terms of less than
ten years, which permits the Company to seek increases in rents upon renewal at
then current market rates if rents provided in the expiring leases are below
then existing market rates. Most of the Company's leases require tenants to pay
a share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Company's exposure to
increases in costs and operating expenses resulting from inflation.
Environmental Matters
Based upon management's ongoing review of its properties, management is not
aware of any environmental condition with respect to any of the Company's
properties that would be reasonably likely to have a material adverse effect on
the Company. There can be no assurance, however, that (a) the discovery of
environmental conditions, which were previously unknown, (b) changes in law, (c)
the conduct of tenants or (d) activities relating to properties in the vicinity
of the Company's properties, will not expose the Company to material liability
in the future. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures or may otherwise adversely affect the operations of the Company's
tenants, which would adversely affect the Company's financial condition and
results of operations.
31
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements.
The following table sets forth the Company's long term debt obligations by
principal cash payments and maturity dates, weighted average interest rates and
estimated fair value at October 31, 2005 (amounts in thousands, except weighted
average interest rate):
For the years ended October 31, Estimated
2006 2007 2008 2009 2010 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Mortgage notes payable $7,486 $11,628 $61,256 $17,755 $5,499 $8,162 $111,786 $114,494
Weighted average interest rate
for debt maturing 8.13% 7.84% 7.30% 7.06% 7.78% 6.91%
As of October 31, 2005, the Company had no outstanding variable rate debt.
During the year ended October 31, 2005, the weighted average interest rate on
outstanding variable rate debt during the period was approximately 4.4%. A
hypothetical increase of 1% in interest rates would have had an immaterial
effect on the Company's interest expense. There were no variable rate borrowings
in fiscal 2004.
The Company believes that its weighted average interest rate of 7.3% on its
fixed rate debt is not materially different from current market interest rates
for debt instruments with similar risks and maturities.
The Company has not planned, and does not plan, to enter into any derivative
financial instruments for trading or speculative purposes.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required by this Item, together with the
report of the Company's independent registered public accounting firm thereon
and the supplementary financial information required by this Item are included
under Item 15 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
There were no changes in, nor any disagreements with, the Company's independent
registered public accounting firm on accounting principles and practices or
financial disclosure, during the year ended October 31, 2005.
Item 9A. Controls and Procedures.
At the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. During the fourth quarter of 2005, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
32
(a) Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The
Company's internal control over financial reporting is a process designed by, or
under the supervision of, the Company's Chief Executive Officer and Chief
Financial Officer and effected by the Company's Board of Directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for in
accordance with generally accepted accounting principles.
The Company's internal control over financial reporting included policies and
procedures that: relate to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
assets of the Company; provide reasonable assurance of the recording of all
transactions necessary to permit the preparation of the Company's consolidated
financial statements in accordance with generally accepted accounting principles
and the proper authorization of receipts and expenditures in accordance with
authorization of the Company's management and directors; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company's assets that could have a material effect on
the Company's consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projection of any evaluation of
effectiveness to future periods is subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of October 31, 2005. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control -
Integrated Framework. Based on its assessment, management determined that the
Company's internal control over financial reporting was effective as of October
31, 2005.
Ernst & Young LLP, an independent registered public accounting firm that audited
and reported on the Company's consolidated financial statements included in this
annual report, also audited management's assessment of the effectiveness of the
Company's internal control over financial reporting as of October 31, 2005.
33
(b) Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Urstadt Biddle Properties Inc.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Urstadt
Biddle Properties Inc. maintained effective internal control over financial
reporting as of October 31, 2005, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the "COSO criteria"). Urstadt Biddle
Properties Inc.'s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Urstadt Biddle Properties Inc.
maintained effective internal control over financial reporting as of October 31,
2005, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Urstadt Biddle Properties Inc. maintained, in all material
respects, effective internal control over financial reporting as of October 31,
2005 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Urstadt Biddle Properties Inc. as of October 31, 2004 and 2005, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 2005 and our report dated
January 12, 2006 expressed an unqualified opinion thereon.
New York, New York /s/ Ernst & Young LLP
January 12, 2006
34
Item 9B. Other Information.
Not applicable.
35
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2006 within the period required under the
applicable rules of the Securities and Exchange Commission. The additional
information required by this Item is included under the captions "ELECTION OF
DIRECTORS" and "COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS" of
such Proxy Statement and is incorporated herein by reference.
Executive Officers of the Registrant.
The following sets forth certain information regarding the executive officers of
the Company:
Name Age Offices Held
- ---- --- ------------
Charles J. Urstadt 77 Chairman and Chief Executive Officer (since September 1989);
Mr. Urstadt has been the Chairman of the Board of Directors since 1986, and a
Director since 1975.
Willing L. Biddle 44 President and Chief Operating Officer (since December 1996); Executive Vice
President (March 1996 to December 1996); Senior Vice President - Management
(June 1995 to March 1996); Vice President - Retail (April 1993 to June 1995).
James R. Moore 57 Executive Vice President and Chief Financial Officer (since March 1996); Senior
Vice President and Chief Financial Officer (1989 to 1996); Treasurer (since
December 1987); Secretary (1987-1999); Vice President-Finance and
Administration (1987 to 1989).
Raymond P. Argila 57 Senior Vice President and Chief Legal Officer (since June 1990)
The Directors elect officers of the Company annually.
The Company has adopted a code of ethics that applies to the chief executive
officer and senior financial officers. In the event of any amendment to, or
waiver from, the code of ethics, the Company will promptly disclose the
amendment or waiver as required by law or regulation of the SEC.
Item 11. Executive Compensation.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2006 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS" of such Proxy
Statement and is incorporated herein by reference.
36
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2006 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS -
Security Ownership of Certain Beneficial Owners and Management" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS - Equity Compensation
Plan Information" of such Proxy Statement and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2006 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS" of such Proxy
Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The Company will file its definitive Proxy Statement for its Annual meeting of
Stockholders to be held on March 9, 2006 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "FEES BILLED BY INDEPENDENT
AUDITORS" of such Proxy Statement and is incorporated herein by reference.
37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
A. Index to Financial Statements and Financial Statement Schedules
1. Financial Statements --
The consolidated financial statements listed in the accompanying index
to financial statements on Page 44 are filed as part of this Annual
Report.
2. Financial Statement Schedules --
The financial statement schedules required by this Item are filed with
this report and are listed in the accompanying index to financial
statements on Page 44. All other financial statement schedules are not
applicable.
B. Exhibits.
Listed below are all Exhibits filed as part of this report. Certain
Exhibits are incorporated by reference to documents previously filed by
the Company with the SEC pursuant to Rule 12b-32 under the Securities
Exchange Act of 1934, as amended.
Exhibit
(3) Articles of Incorporation and By-laws.
3.1 (a) Amended Articles of Incorporation of the Company
(incorporated by reference to Exhibit C of Amendment No. 1 to
Registrant's Statement on Form S-4 (SEC File No. 333-19113)).
(b) Articles Supplementary of the Company (incorporated by
reference to Annex A of Exhibit 4.1 of the Registrant's
Current Report on Form 8-K dated August 3, 1998 (SEC File No.
001-12803)).
(c) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated January 8, 1998 (SEC File No. 001-12803)).
(d) Articles Supplementary of the Company (incorporated by
reference to Exhibit A of Exhibit 4.1 of the Registrant's
Current Report on Form 8-K dated March 12, 1998 (SEC File No.
001-12803)).
(e) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-107803)).
(f) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated April 11, 2005 (SEC File No. 001-12803)).
(g) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated May 3, 2005 (SEC File No. 001-12803)).
(h) Certificate of Correction to the Articles Supplementary of the
Company (incorporated by reference to Exhibit 4.2 of the
Registrant's Current Report on Form 8-K dated May 3, 2005 (SEC
File No. 001-12803)).
38
(i) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated June 7, 2005 (SEC File No. 001-12803)).
3.2 By-laws of the Company (incorporated by reference to
Exhibit D of Amendment No. 1 to Registrant's Registration
Statement on Form S-4 (SEC File No. 333-19113).
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
4.1 Common Stock: See Exhibits 3.1 (a)-(i) hereto.
4.2 Series B Preferred Shares: See Exhibits 3.1 (a)-(i),
10.13 - 10.15, 10.17 and 10.22 hereto.
4.3 Series C Preferred Shares: See Exhibits 3.1 (a)-(i) and
10.23 hereto.
4.4 Series D Preferred Shares: See Exhibits 3.1 (a)-(i).
4.5 Series A Preferred Share Purchase Rights: See Exhibits 3.1
(a)-(i), 10.3 and 10.16 hereto.
39
(10) Material Contracts.
10.1 Form of Indemnification Agreement entered into between the
Registrant and each of its Directors and for future use with
Directors and officers of the Company (incorporated herein by
reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1989 (SEC File No.
001-12803)). (1)
10.2 Amended and Restated Change of Control Agreement between the
Registrant and James R. Moore dated November 15, 1990
(incorporated herein by reference to Exhibit 10.3 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1990 (SEC File No. 001-12803)). (1)
10.3 Amended and Restated Rights Agreement between the Company and
The Bank of New York, as Rights Agent, dated as of July 31,
1998 (incorporated herein by reference to Exhibit 10-1 of the
Registrant's Current Report on Form 8-K dated November 5, 1998
(SEC File No. 001-12803)).
10.4 Agreement dated December 19, 1991 between the Registrant and
Raymond P. Argila amending the Change of Control Agreement
dated as of June 12, 1990 between the Registrant and Raymond
P. Argila (incorporated herein by reference to Exhibit 10.6.1
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991 (SEC File No. 001-12803)).
(1)
10.5 Change of Control Agreement dated as of December 20, 1990
between the Registrant and Charles J. Urstadt (incorporated
herein by reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1990 (SEC File No. 001-12803)). (1)
10.6 Amended and Restated HRE Properties Stock Option Plan
(incorporated herein by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1991 (SEC File No. 001-12803)). (1)
10.6.1 Amendments to HRE Properties Stock Option Plan dated June
9, 1993 (incorporated by reference to Exhibit 10.6.1 of
the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1995 (SEC File No. 001-12803)). (1)
10.6.2 Form of Supplemental Agreement with Stock Option Plan
Participants (non-statutory options) (incorporated by
reference to Exhibit 10.6.2 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1998 (SEC
File No. 001-12803)). (1)
10.6.3 Form of Supplemental Agreement with Stock Option Plan
Participants (statutory options) (incorporated by reference to
Exhibit 10.6.2 of the Registrant's Annual Report on Form 10-K
for the year ended October 31, 1998 (SEC File No. 001-12803)).
40
10.7 Amended and Restated Dividend Reinvestment and Share
Purchase Plan (incorporated herein by reference to the
Registrant's Registration Statement on Form S-3
(See File No. 333-64381).
10.8 Amended and Restated Change of Control Agreement dated as
of November 6, 1996 between the Registrant and Willing L.
Biddle (incorporated by reference to Exhibit 10.7 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1996 (SEC File No. 001-12803)). (1)
10.10 Restricted Stock Plan (incorporated by reference to
Exhibit B of Amendment No. 1 to Registrant's Registration
Statement on Form S-4 (SEC File No. 333-19113)). (1)
10.10.1 Form of Supplemental Agreement with Restricted Stockholders
(incorporated by reference to Exhibit 10.6.2 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1998 (SEC File No. 001-12803)). (1)
10.11 Excess Benefit and Deferred Compensation Plan (incorporated
by reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1998
(SEC File No. 001-12803)). (1)
10.12 Purchase and Sale Agreement, dated September 9, 1998, by and
between Goodwives Center Limited Partnership, as seller, and
UB Darien, Inc., a wholly owned subsidiary of the Registrant,
as purchaser (incorporated by reference to Exhibit 10 of the
Registrant's Current Report on Form 8-K dated September 23,
1998 (SEC File No. 001-12803)).
10.13 Subscription Agreement, dated January 8, 1998, by and among
the Company and the Initial Purchasers (incorporated by
reference to Exhibit 4.2 of the Registrant's Current Report on
Form 8-K dated January 8, 1998 (SEC File No. 001-12803)).
10.14 Registration Rights Agreement, dated January 8, 1998, by and
among the Company and the Initial Purchasers (incorporated by
reference to Exhibit 4.3 of the Registrant's Current Report on
Form 8-K dated January 8, 1998 (SEC File No. 001-12803)).
10.15 Waiver and Amendment of Registration Rights Agreement, dated
as of April 16, 1999, by and among the Company and the Initial
Purchasers (incorporated by reference to Exhibit 10.15 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1999 (SEC File No. 001-12803)).
10.16 Amendment to Shareholder Rights Agreement dated as of
September 22, 1999 between the Company and the Rights Agent
(incorporated by reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1999 (SEC File No. 001-12803)).
10.17 Waiver and Amendment of Registration Rights Agreement dated as
of September 14, 2001 by and among the Company and the Initial
Purchasers (incorporated by reference to Exhibit 10.17 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2001 (SEC File No. 001-12803)).
10.18 Amended and Restated Restricted Stock Award Plan effective
December 9, 1999 (incorporated by reference to Exhibit 10.18
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 2000 (SEC File No. 001-12803)).(1)
41
10.19 Amended and Restated Stock Option Plan adopted June 28, 2000
(incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000 (SEC File No. 001-12803)). (1)
10.20 Promissory Note and Stock Pledge Agreement dated July 3, 2002
by Willing L. Biddle in favor of the Registrant (incorporated
by reference to Exhibit 10.20 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 2002
(SEC File No. 001-12803)). (1)
10.21 Amended and Restated Restricted Stock Award Plan effective
December 12, 2001 as approved by the Registrant's
stockholders on March 13, 2002 (incorporated by reference
to Exhibit 10.21 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 2002). (1)
10.22 Amendment to Registration Rights Agreement dated as of
December 31, 2001 by and among the Company and the Remaining
Initial Purchasers (incorporated by reference to Exhibit 10.22
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 2002).
10.23 Registration Rights Agreement dated as of May 29, 2003 by and
between the Company and Ferris, Baker Watts, Incorporated
(incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-3 (SEC File No. 333-107803)).
10.24 Amended and Restated Restricted Stock Award Plan as approved
by the Company's stockholders on March 10, 2004 (incorporated
by reference to Exhibit 10.24 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 2004 (SEC
File No. 001-12803)). (1)
10.24.1 Form of Restricted Stock Award Agreement with Restricted Stock
Plan Participants (Non-Employee Directors) (incorporated by
reference to Exhibit 10.24.1 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 2004
(SEC File No. 001-12803)). (1)
10.24.2 Form of Restricted Stock Award Agreement with Restricted
Stock Plan Participants (Employee Directors) (incorporated by
reference to Exhibit 10.24.2 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 2004 (SEC
File No. 001-12803)). (1)
10.24.3 Form of Restricted Stock Award Agreement with Restricted Stock
Plan Participants (Employees) (incorporated by reference to
Exhibit 10.24.3 of the Registrant's Annual Report on Form 10-K
for the year ended October 31, 2004 (SEC File No.
001-12803)). (1)
10.25 Excess Benefit and Deferred Compensation Plan effective as
of January 1, 2005 (incorporated by reference to Exhibit
10.25 of the Registrant's Annual Report on Form 10-K for the
year ended October 31, 2004 (SEC File No. 001-12803)). (1)
10.26 Purchase and Sale Agreement between UB Railside, LLC and The
Dock, Incorporated (incorporated by reference to Exhibit 10.1
of the Registrant's Current Report on Form 8-K/A dated March
11, 2005 (SEC File No. 001-12803)).
10.27 Purchase and Sale Agreement between UB Dockside, LLC and The
Dock, Incorporated (incorporated by reference to Exhibit
10.2 of the Registrant's Current Report on Form 8-K/A dated
March 11, 2005 (SEC File No. 001-12803)).
42
10.28 Underwriting Agreement between Urstadt Biddle Properties Inc.
and Deutsche Bank Securities, Inc., dated April 7, 2005
(incorporated by reference to Exhibit 1.1 of the Registrant's
Current Report on Form 8-K dated April 11, 2005
(SEC File No. 001-12803)).
10.29 Underwriting Agreement between Urstadt Biddle Properties Inc.
and Deutsche Bank Securities, Inc., dated April 29, 2005
(incorporated by reference to Exhibit 1.1 of the Registrant's
Current Report on Form 8-K dated May 3, 2005 (SEC File No.
001-12803)).
10.30 Underwriting Agreement between Urstadt Biddle Properties Inc.
and Deutsche Bank Securities, Inc., dated June 2, 2005
(incorporated by reference to Exhibit 1.1 of the Registrant's
Current Report on Form 8-K dated June 7, 2005
(SEC File No. 001-12803)).
(1) Management contract, compensatory plan or arrangement.
(14) Code of Ethics for Chief Executive Officer and Senior
Financial Officers (incorporated by reference to Exhibit 14 of
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 2003 (SEC File No. 001-12803)).
(21) Subsidiaries.
21.1 List of Company's subsidiaries
(23) Consents of Experts.
23.1 Consent of Ernst & Young LLP
(31.1) Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by Charles
J. Urstadt.
(31.2) Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by James R.
Moore.
(32) Certification pursuant to 18 U.S.C. Section 1350, as adopted,
pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
signed and dated by Charles J. Urstadt and James R. Moore.
43
URSTADT BIDDLE PROPERTIES INC.
Item 15a. INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Balance Sheets at October 31, 2005 and 2004 45
Consolidated Statements of Income for each of the
three years in the period ended October 31, 2005 46
Consolidated Statements of Cash Flows for each of the
three years in the period ended October 31, 2005 47
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended October 31, 2005 48
Notes to Consolidated Financial Statements 50
Report of Independent Registered Public Accounting Firm 64
Schedules.
III Real Estate and Accumulated Depreciation - October 31, 2005
IV Mortgage Loans on Real Estate - October 31, 2005
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
44
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31,
----------
ASSETS 2005 2004
---- ----
Real Estate Investments:
Core properties - at cost $468,444 $ 381,937
Non-core properties - at cost 6,383 20,621
-------- --------
474,827 402,558
Less: accumulated depreciation (65,253) (61,389)
-------- --------
409,574 341,169
Mortgage notes receivable 2,024 2,109
-------- --------
411,598 343,278
Property held for sale - 4,002
Cash and cash equivalents 26,494 25,940
Restricted cash 1,200 1,184
Marketable securities 2,453 2,681
Tenant receivables 14,442 11,249
Prepaid expenses and other assets 4,526 3,303
Deferred charges, net of accumulated amortization 3,726 3,280
-------- ---------
Total Assets $464,439 $ 394,917
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $111,786 $ 107,443
Accounts payable and accrued expenses 3,991 1,515
Deferred compensation - officers 1,051 501
Other liabilities 4,699 3,617
------- -------
Total Liabilities 121,527 113,076
------- -------
Minority interests 5,318 7,320
----- -----
Redeemable Preferred Stock, par value $.01 per share; 20,000,000 shares authorized
8.99% Series B Senior Cumulative Preferred stock, (liquidation preference of $100 per share);
150,000 shares issued and outstanding 14,341 14,341
8.50% Series C Senior Cumulative Preferred Stock, (liquidation preference of $100 per share);
400,000 shares issued and outstanding 38,406 38,406
------ ------
Total Preferred Stock 52,747 52,747
------ ------
Commitments and Contingencies
Stockholders' Equity:
7.5% Series D Senior Cumulative Preferred stock (liquidation preference of $25 per share);
2,450,000 and 0 shares issued and outstanding 61,250 -
Excess stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding - -
Common stock, par value $.01 per share; 30,000,000 shares authorized;
7,429,331 and 7,189,991 shares issued and outstanding 74 72
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
18,705,800 and 18,649,008 shares issued and outstanding 187 186
Additional paid in capital 267,365 264,680
Cumulative distributions in excess of net income (35,007) (36,581)
Accumulated other comprehensive income 499 472
Unamortized restricted stock compensation and officer note receivable (9,521) (7,055)
------- -------
Total Stockholders' Equity 284,847 221,774
------- -------
Total Liabilities and Stockholders' Equity $464,439 $ 394,917
======== =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
45
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended October 31,
----------------------
2005 2004 2003
---- ---- ----
Revenues
Base rents $52,149 $ 46,824 $ 43,045
Recoveries from tenants 16,506 13,654 12,143
Lease termination income 253 577 80
Interest and other 1,056 825 1,034
------ ------ ------
69,964 61,880 56,302
------ ------ ------
Operating Expenses
Property operating 10,915 9,242 9,001
Property taxes 9,245 8,025 7,056
Interest 8,502 8,113 8,094
Depreciation and amortization 12,054 10,541 9,676
General and administrative expenses 5,155 3,416 3,154
Directors' fees and expenses 258 207 185
------ ------ ------
46,129 39,544 37,166
------ ------ ------
Operating Income before Minority Interests and Discontinued Operations 23,835 22,336 19,136
Minority Interests (339) (367) (365)
------ ------ ------
Income from Continuing Operations before Discontinued Operations 23,496 21,969 18,771
------ ------ ------
Discontinued Operations:
Income from discontinued operations 469 1,346 1,599
Gains on sales of properties 7,020 - -
----- ----- -----
Income from Discontinued Operations 7,489 1,346 1,599
----- ----- -----
Net Income 30,985 23,315 20,370
Preferred Stock Dividends (7,009) (4,749) (2,794)
------- ------- -------
Net Income Applicable to Common and Class A Common Stockholders $23,976 $ 18,566 $ 17,576
======= ======== ========
Basic earnings per share:
Per Common Share:
Income from continuing operations $ .62 $ .65 $ .61
Income from discontinued operations $ .28 $ .05 $ .06
------ ------ ------
Net Income Applicable to Common Stockholders $ .90 $ .70 $ .67
====== ====== ======
Per Class A Common Share:
Income from continuing operations $ .68 $ .71 $ .67
Income from discontinued operations $ .31 $ .06 $ .07
------ ------ ------
Net Income Applicable to Class A Common Stockholders $ .99 $ .77 $ .74
====== ====== ======
Diluted earnings per share:
Per Common Share:
Income from continuing operations $ .60 $ .64 $ .60
Income from discontinued operations $ .27 $ .05 $ .06
------ ------ ------
Net Income Applicable to Common Stockholders $ .87 $ .69 $ .66
====== ====== ======
Per Class A Common Share:
Income from continuing operations $ .66 $ .71 $ .66
Income from discontinued operations $ .30 $ .05 $ .07
------ ------ ------
Net Income Applicable to Class A Common Stockholders $ .96 $ .76 $ .73
====== ====== ======
Dividends per share:
Common $ .80 $ .78 $ .76
====== ====== ======
Class A Common $ .88 $ .86 $ .84
====== ====== ======
The accompanying notes to consolidated financial statements are
an integral part of these statements.
46
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended October 31,
----------------------
2005 2004 2003
---- ---- ----
Cash Flows from Operating Activities:
Net income $30,985 $ 23,315 $ 20,370
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization from discontinued operations 345 706 712
Depreciation and amortization from continuing operations 12,054 10,541 9,676
Amortization of compensation expense 1,617 1,322 1,105
Increase in value of deferred compensation arrangement 305 - -
Gains on sale of properties (7,020) - -
Minority interests 339 367 365
Increase in restricted cash (16) (86) (2)
Increase in tenant receivables (2,918) (2,708) (3,120)
(Decrease) increase in accounts payable and accrued expenses (151) (1,226) 243
(Decrease) increase in other assets and other liabilities, net (35) (1,487) 1,827
------ ------ ------
Net Cash Flow Provided by Operating Activities 35,505 30,744 31,176
------ ------ ------
Cash Flows from Investing Activities:
Sales of marketable securities 255 7,323 15,613
Acquisitions of real estate investments (71,710) (6,625) (83,485)
Acquisition of limited partner interests in consolidated joint venture (2,078) - -
Improvements to properties and deferred charges (5,319) (2,822) (2,844)
Net proceeds from sales of properties 17,758 - -
Distributions to limited partners of consolidated joint ventures (339) (367) (365)
Payments received on mortgage notes and other receivables 85 75 1,263
-------- ------- --------
Net Cash Flow Used in Investing Activities (61,348) (2,416) (69,818)
-------- ------- --------
Cash Flows from Financing Activities:
Proceeds from revolving credit line borrowings 19,500 - -
Repayments on revolving credit line borrowings (19,500) - -
Net proceeds from issuance of preferred stock 59,380 - 38,406
Sales of additional shares of Common and Class A Common Stock 1,287 3,141 1,366
Payments on mortgage notes payable (4,173) (1,826) (1,841)
Dividends paid - Common and Class A Common Stock (22,402) (21,536) (20,700)
Dividends paid - Preferred Stock (7,009) (4,749) (2,794)
Repurchase of shares of Common and Class A Common Stock (686) - -
Repayments of notes receivable from officers - 133 312
------ -------- ------
Net Cash Flow Provided by (Used In) Financing Activities 26,397 (24,837) 14,749
------ -------- ------
Net Increase (Decrease) In Cash and Cash Equivalents 554 3,491 (23,893)
Cash and Cash Equivalents at Beginning of Year 25,940 22,449 46,342
------ ------ ------
Cash and Cash Equivalents at End of Year $26,494 $ 25,940 $ 22,449
======= ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements
47
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares and per share data)
7.5% Series D
Preferred Stock Common Stock Class A Common Stock
Issued Amount Issued Amount Issued Amount
------------------- ------------------- ---------------------
Balances - October 31, 2002 - $- 6,578,572 $66 18,449,472 $185
Net income applicable to Common
and Class A common stockholders - - - - - -
Cash dividends paid :
Common stock ($.76 per share) - - - - - -
Class A common stock ($.84 per share) - - - - - -
Issuance of shares under dividend reinvestment plan - - 61,699 1 18,704 -
Shares issued under restricted stock plan - - 159,500 1 56,200 -
Amortization of restricted stock compensation - - - - - -
Exercise of stock options - - 18,000 - 24,077 -
Repayment of notes receivable from officers - - - - - -
------ ------ ------- ----- ------- -----
Balances - October 31, 2003 - - 6,817,771 68 18,548,453 185
Comprehensive Income:
Net income applicable to Common
and Class A common stockholders - - - - - -
Unrealized gains in marketable securities
Total Comprehensive Income - - - - - -
Cash dividends paid :
Common stock ($.78 per share) - - - - - -
Class A common stock ($.86 per share)
Issuance of shares under dividend reinvestment plan - - 181,720 2 18,306 -
Shares issued under restricted stock plan - - 175,500 2 58,625 1
Amortization of restricted stock compensation - - - - - -
Exercise of stock options - - 15,000 - 23,624 -
Repayment of notes receivable from officers - - - - - -
----- ---- ------- ----- ------ ----
Balances - October 31, 2004 - - 7,189,991 72 18,649,008 186
Comprehensive Income:
Net income applicable to Common
and Class A common stockholders - - - - - -
Change in unrealized gains in marketable securities - - - - - -
Total Comprehensive Income - - - - - -
Cash dividends paid :
Common stock ($.80 per share) - - - - - -
Class A common stock ($.88 per share) - - - - - -
Issuance of shares under dividend reinvestment plan - - 59,390 - 15,767 -
Shares issued under restricted stock plan - - 175,800 2 75,675 1
Amortization of restricted stock
compensation and other adjustment - - - - - -
Exercise of stock options - - 7,750 - 6,750 -
Repurchases of Common and Class A Common shares - - (3,600) - (41,400) -
Issuance of Series D Preferred Stock 2,450,000 61,250 - - - -
--------- ------ ------- ---- -------- ----
Balances - October 31, 2005 2,450,000 $61,250 7,429,331 $74 18,705,800 187
========= ======= ========== ==== =========== ====
48
Unamortized
Restricted
Cumulative Accumulated Stock
Additional Distributions Other Compensation Total
Paid In In Excess of Comprehensive And Notes Stockholders'
Capital Net Income Income Receivable Equity
------- ---------- ------ ---------- ------
Balances - October 31, 2002 $254,266 $(30,487) $- $(4,013) $220,017
Net income applicable to Common
and Class A common stockholders - 17,576 - - 17,576
Cash dividends paid :
Common stock ($.76 per share) - (5,135) - - (5,135)
Class A common stock ($.84 per share) - (15,565) - - (15,565)
Issuance of shares under dividend reinvestment plan 1,051 - - - 1,052
Shares issued under restricted stock plan 2,665 - - (2,666) -
Amortization of restricted stock compensation - - - 1,105 1,105
Exercise of stock options 314 - - - 314
Repayment of notes receivable from officers - - - 312 312
------- ------- ---- ------- -------
Balances - October 31, 2003 258,296 (33,611) - (5,262) 219,676
Comprehensive Income:
Net income applicable to Common
and Class A common stockholders - 18,566 - - 18,566
Unrealized gains in marketable securities - - 472 - 472
------
Total Comprehensive Income - - - - 19,038
Cash dividends paid :
Common stock ($.78 per share) - (5,516) - - (5,516)
Class A common stock ($.86 per share) - (16,020) - - (16,020)
Issuance of shares under dividend reinvestment plan 2,843 - - - 2,845
Shares issued under restricted stock plan 3,245 - - (3,248) -
Amortization of restricted stock compensation - - - 1,322 1,322
Exercise of stock options 296 - - - 296
Repayment of notes receivable from officers - - - 133 133
------- ------ ----- ------- ------
Balances - October 31, 2004 264,680 (36,581) 472 (7,055) 221,774
Comprehensive Income:
Net income applicable to Common
and Class A common stockholders - 23,976 - - 23,976
Change in unrealized gains in marketable securities - - 27 - 27
------
Total Comprehensive Income - - - - 24,003
Cash dividends paid :
Common stock ($.80 per share) - (5,918) - - (5,918)
Class A common stock ($.88 per share) - (16,484) - - (16,484)
Issuance of shares under dividend reinvestment plan 1,186 - - - 1,186
Shares issued under restricted stock plan 4,080 - - (4,083) -
Amortization of restricted stock
compensation and other adjustment (125) - - 1,617 1,492
Exercise of stock options 100 - - - 100
Repurchases of Common and Class A Common shares (686) - - - (686)
Issuance of Series D Preferred Stock (1,870) - - - 59,380
-------- --------- ------- --------- ---------
Balances - October 31, 2005 $267,365 $(35,007) $499 $(9,521) $284,847
======== ========= ======= ========= =========
The accompanying notes to consolidated statements are an integral part of
these statements
49
URSTADT BIDDLE PROPERTIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2005
(1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
Urstadt Biddle Properties Inc. ("Company"), a real estate investment trust
("REIT"), is engaged in the acquisition, ownership and management of commercial
real estate, primarily neighborhood and community shopping centers in the
northeastern part of the United States. Other assets include office and retail
buildings and industrial properties. The Company's major tenants include
supermarket chains and other retailers who sell basic necessities. At October
31, 2005, the Company owned or had interests in 34 properties containing a total
of 3.7 million square feet of leasable area.
Principles of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, and joint ventures in which the Company has the
ability to control the affairs of the venture. The Company believes it has the
ability to control the affairs of its consolidated joint ventures because as the
sole general partner, the Company has the exclusive right to exercise all
management powers over the business and affairs of the respective joint
ventures. In addition, the limited partners have no important rights as defined
in the AICPA's Statement of Position ("SOP") 78-9 "Accounting for Investments in
Real Estate Ventures". The joint ventures are consolidated into the consolidated
financial statements of the Company. All significant intercompany transactions
and balances have been eliminated in consolidation.
The accompanying financial statements are prepared on the accrual basis in
accordance with accounting principles generally accepted in the United States
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the disclosure
of contingent assets and liabilities, the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the periods covered by the financial statements.
Actual results could differ from these estimates.
Reclassifications
Certain prior period amounts have been reclassified (including the presentation
of discontinued operations) to conform to the current year presentation.
Federal Income Taxes
The Company has elected to be treated as a REIT under Sections 856-860 of the
Internal Revenue Code (Code). Under those sections, a REIT that among other
things, distributes at least 90% of real estate trust taxable income and meets
certain other qualifications prescribed by the Code will not be taxed on that
portion of its taxable income that is distributed. The Company believes it
qualifies as a REIT and has distributed all of its taxable income for the fiscal
years through 2005 in accordance with the provisions of the Code. Accordingly,
no provision has been made for Federal income taxes in the accompanying
consolidated financial statements.
Real Estate Investments
All capitalizable costs related to the improvement or replacement of real estate
properties are capitalized. Additions, renovations and improvements that enhance
and/or extend the useful life of a property are also capitalized. Expenditures
for ordinary maintenance, repairs and improvements that do not materially
prolong the normal useful life of an asset are charged to operations as
incurred.
Upon the acquisition of real estate, the Company assesses the fair value of
acquired tangible assets such as land, buildings and tenant improvements,
intangible assets such as above and below market leases, acquired-in place
leases and other identified intangible assets and assumed liabilities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations." The Company allocates the purchase price to the
acquired assets and assumed liabilities based on their relative fair values. The
Company assesses and considers fair value based on estimated cash flow
projections that utilize appropriate discount and/or capitalization rates, as
well as available market information. The fair value of the tangible assets of
an acquired property considers the value of the property as if it were vacant.
Above and below market leases acquired are recorded at their fair value. The
capitalized above-market lease values are amortized as a reduction of rental
revenue over the remaining term of the respective leases and the capitalized
below-market lease values are amortized as an increase to rental revenue over
the remaining term of the respective leases.
The value of in-place leases is based on the Company's evaluation of the
specific characteristics of each tenant's lease. Factors considered include
estimates of carrying costs during expected lease-up periods, current market
conditions, and costs to execute similar leases. The value of in-place leases
are amortized to depreciation and amortization expense over the remaining term
of the respective leases. If a tenant vacates its space prior to its contractual
expiration date, any unamortized balance of their related intangible asset is
expensed.
50
Depreciation and Amortization
The Company uses the straight-line method for depreciation and amortization.
Core and non-core properties are depreciated over the estimated useful lives of
the properties, which range from 30 to 40 years. Property improvements are
depreciated over the estimated useful lives that range from 10 to 20 years.
Furniture and fixtures are depreciated over the estimated useful lives that
range from 3 to 10 years. Tenant improvements are amortized over the shorter of
the life of the related leases or their useful life.
Property Held for Sale
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"). SFAS No. 144 requires, among other things, that the
assets and liabilities and the results of operations of the Company's properties
that have been sold or otherwise qualify as held for sale be classified as
discontinued operations and presented separately in the Company's consolidated
financial statements. The Company classifies properties held for sale that are
under contract for sale and are expected to be sold within the next twelve
months as Property Held for Sale in the accompanying consolidated balance
sheets.
Deferred Charges
Deferred charges consist principally of leasing commissions (which are amortized
ratably over the life of the tenant leases) and financing fees (which are
amortized over the terms of the respective agreements). Deferred charges in the
accompanying consolidated balance sheets are shown at cost, net of accumulated
amortization of $2,292,000 and $1,886,000 as of October 31, 2005 and 2004,
respectively.
Asset Impairment
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to aggregate future net cash
flows (undiscounted and without interest) expected to be generated by the asset.
If such assets are considered impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the
fair value.
Revenue Recognition
Revenues from operating leases include revenues from core properties and
non-core properties. Rental income is generally recognized based on the terms of
leases entered into with tenants. In those instances in which the Company funds
tenant improvements and the improvements are deemed to be owned by the Company,
revenue recognition will commence when the improvements are substantially
completed and possession or control of the space is turned over to the tenant.
When the Company determines that the tenant allowances are lease incentives, the
Company commences revenue recognition when possession or control of the space is
turned over to the tenant for tenant work to begin. Minimum rental income from
leases with scheduled rent increases is recognized on a straight-line basis over
the lease term. At October 31, 2005 and 2004, approximately $8,051,000 and
$7,199,000 has been recognized as straight-line rents receivable (representing
the current net cumulative rents recognized prior to when billed and collectible
as provided by the terms of the leases), all of which is included in tenant
receivables in the accompanying consolidated financial statements. Percentage
rent is recognized when a specific tenant's sales breakpoint is achieved.
Property operating expense recoveries from tenants of common area maintenance,
real estate taxes and other recoverable costs are recognized in the period the
related expenses are incurred. Lease incentives are amortized as a reduction of
rental revenue over the respective tenant lease terms. Lease termination amounts
received by the Company from its tenants are recognized as income in the period
received. Interest income is recognized as it is earned. Gains or losses on
disposition of properties are recorded when the criteria for recognizing such
gains or losses under generally accepted accounting principles have been met.
The Company provides an allowance for doubtful accounts against the portion of
tenant receivables (including an allowance for future tenant credit losses of
approximately 10% of the deferred straight-line rents receivable) which is
estimated to be uncollectible. Such allowances are reviewed periodically. At
October 31, 2005 and 2004, tenant receivables in the accompanying consolidated
balance sheets are shown net of allowances for doubtful accounts of $1,409,000
and $2,047,000, respectively.
Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of less than ninety days.
Restricted Cash
Restricted cash consists of those tenant security deposits and replacement and
other reserves required by agreement with certain of the Company's mortgage
lenders for property level capital requirements which are required to be held in
separate bank accounts.
51
Marketable Securities
Marketable securities consist of short-term investments and marketable equity
securities. Short-term investments (consisting of investments with original
maturities of greater than three months when purchased) and marketable equity
securities are carried at fair value. The Company has classified marketable
securities as available for sale. Unrealized gains and losses on available for
sale securities are recorded as other comprehensive income in Stockholders'
Equity. At October 31, 2005 and 2004, other comprehensive income consists of net
unrealized gains of $499,000 and $472,000, respectively. Unrealized gains
included in other comprehensive income will be reclassified into earnings as
gains are realized. For the year ended October 31, 2005, gains on sales of
marketable securities amounted to $70,000 (none in fiscal 2004 and 2003).
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, tenant
receivables, prepaid expenses and other assets, accounts payable and accrued
expenses and other liabilities are reasonable estimates of their fair values
because of the short term nature of these instruments.
The estimated fair value of mortgage notes receivable collateralized by real
property is based on discounting the future cash flows at a year-end risk
adjusted lending rate that the Company would utilize for loans of similar risk
and duration. At October 31, 2005 and 2004, the estimated aggregate fair value
of the mortgage notes receivable was $1,962,000 and $2,016,000, respectively.
The estimated fair value of mortgage notes payable was $114,500,000 and
$115,000,000 at October 31, 2005 and 2004, respectively. The estimated fair
value of mortgage notes payable is based on discounting the future cash flows at
a year-end risk adjusted borrowing rate currently available to the Company for
issuance of debt with similar terms and remaining maturities.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, and tenant
receivables. The Company places its cash and cash equivalents in excess of
insured amounts with high quality financial institutions. The Company performs
ongoing credit evaluations of its tenants and may require certain tenants to
provide security deposits or letters of credit. Though these security deposits
and letters of credit are insufficient to meet the terminal value of a tenant's
lease obligation, they are a measure of good faith and a source of funds to
offset the economic costs associated with lost rent and the costs associated
with retenanting the space. There is no dependence upon any single tenant.
Stock Plans
The Company accounts for its stock plans in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Compensation expense for restricted stock awards is determined on
the grant date based on the market price of the shares awarded and is recognized
over the explicit vesting periods. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), allows
entities to continue to apply the provisions of APB No. 25 and provide the
required disclosures for employee stock grants made as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected, for
all periods presented, to apply the provisions of APB No. 25 and provide the
disclosures required by SFAS No. 123, as amended by SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". Beginning in the
first quarter of fiscal 2006, the Company will apply the provisions of SFAS No.
123R, "Share-Based Payments" ("SFAS No. 123R"). Upon adoption of SFAS No. 123R,
the Company will change its policy for recognizing compensation expense for
restricted stock awards over the explicit vesting periods to the earlier of the
explicit vesting period of the award or the date an employee first becomes
eligible for retirement. Had compensation cost for restricted stock awards been
determined based on the date an employee first becomes eligible for retirement
consistent with the provisions of SFAS No. 123R, the Company's net income in
each of the three years ended October 31, 2005 would have been lower by
$732,000, $718,000, and $476,000, respectively.
52
Earnings Per Share
The Company calculates basic and diluted earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." Basic earnings per share ("EPS") excludes
the impact of dilutive shares and is computed by dividing net income applicable
to Common and Class A Common stockholders by the weighted number of Common
shares and Class A Common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue Common shares or Class A Common shares were exercised or
converted into Common shares or Class A Common shares and then shared in the
earnings of the Company. Since the cash dividends declared on the Company's
Class A Common stock are higher than the dividends declared on the Common Stock,
basic and diluted EPS have been calculated using the "two-class" method. The
two-class method is an earnings allocation formula that determines earnings per
share for each class of common stock according to the weighted average of the
dividends declared, outstanding shares per class and participation rights in
undistributed earnings.
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
2005 2004 2003
---- ---- ----
Numerator
Net income applicable to common stockholders - basic $5,902 $4,488 $4,171
Effect of dilutive securities:
Operating partnership units 281 192 151
------ ------ ------
Net income applicable to common stockholders - diluted $6,183 $4,680 $4,322
====== ====== ======
Denominator
Denominator for basic EPS-weighted average common shares 6,566 6,414 6,259
Effect of dilutive securities:
Stock options and awards 446 351 252
Operating partnership units 55 55 55
----- ----- -----
Denominator for diluted EPS - weighted average common equivalent shares 7,067 6,820 6,566
===== ===== =====
Numerator
Net income applicable to Class A common stockholders-basic $18,074 $14,078 $13,405
Effect of dilutive securities:
Operating partnership units 58 175 215
------- ------- -------
Net income applicable to Class A common stockholders - diluted $18,132 $14,253 $13,620
======= ======= =======
Denominator
Denominator for basic EPS - weighted average Class A common shares 18,280 18,248 18,200
Effect of dilutive securities:
Stock options and awards 314 278 210
Operating partnership units 246 310 310
------ ------ ------
Denominator for diluted EPS - weighted average Class A common equivalent shares 18,840 18,836 18,720
====== ====== ======
Segment Reporting
The Company operates in one industry segment, ownership of commercial real
estate properties which are located principally in the northeastern United
States. The Company does not distinguish its property operations for purposes of
measuring performance. Accordingly, the Company believes it has a single
reportable segment for disclosure purposes.
Recently Issued Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150 "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). The SFAS No. 150 establishes standards
for classifying and measuring as liabilities certain financial instruments that
embody obligations of the issuer and have characteristics of both liabilities
and equity. The FASB deferred the classification and measurement provisions of
SFAS No. 150 that apply to certain mandatory redeemable non-controlling
interests. This deferral is expected to remain in effect while these provisions
are further evaluated by the FASB. The Company has one finite life joint venture
which contains a mandatory redeemable non-controlling interest. At October 31,
2005 the estimated fair value of the minority interest was approximately $3.2
million. The joint venture has a termination date of December 31, 2097.
53
In December 2004, the FASB issued SFAS No. 153 "Exchange of Non-monetary
Assets-an amendment of APB Opinion No. 29" ("SFAS No. 153"). The guidance in APB
Opinion No. 29, "Accounting for Non-Monetary Transactions," (APB No. 29) is
based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. SFAS No. 153 amends APB No. 29
to eliminate an exception for non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. The impact of adopting this
Statement is not expected to have a material effect on the Company's financial
position or results of operations.
Emerging Issues Task Force ("EITF") Issue 04-5, "Investor's Accounting for an
Investment in a Limited Partnership when the Investor is the Sole General
Partner and the Limited Partners Have Certain Rights," ("EITF 04-5") was
ratified by the FASB in June 2005. At issue is what rights held by the limited
partners (such as substantive kick-out rights or substantive participating
rights) preclude consolidation in circumstances in which the sole general
partner would consolidate the limited partnership in accordance with GAAP. The
assessment of limited partners rights and their impact on the presumption of
control of the limited partnership by the sole general partner should be made
when an investor becomes the sole general partner and should be reassessed if
(i) there is a change to the terms or in the exercisability of the rights of the
limited partners, (ii) the sole general partner increases or decreases its
ownership of limited partnership interests, or (iii) there is an increase or
decrease in the number of outstanding limited partnership interests. This issue
was effective June 29, 2005 for new or modified arrangements and no later than
for fiscal years beginning after December 15, 2005 for unmodified existing
arrangements. The adoption of this pronouncement did not have a material effect
on its operations or financial position.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS No. 154"), which replaces Accounting Principles Board Opinion
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements." SFAS No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principles. It requires
retrospective application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects of the change or the cumulative effect of the change.
This statement is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005.
54
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate, net of depreciation, were composed of
the following at October 31, 2005 and 2004 (in thousands):
Mortgage
Core Non-Core Notes 2005 2004
Properties Properties Receivables Totals Totals
----------------------------------- ------------ --------------- -------------- ------------ ------------
Retail $398,718 $1,878 $2,024 402,620 $326,607
Office 7,550 - - 7,550 15,023
Industrial - 1,124 - 1,124 1,344
Undeveloped Land 304 - - 304 304
-------- --------- ------ -------- --------
$406,572 $ 3,002 $2,024 $411,598 $343,278
======== ========= ====== ======== ========
The Company's investments at October 31, 2005, consisted of equity interests in
34 properties, which are located in various regions throughout the United States
and two mortgage notes receivable secured by retail properties. The Company's
primary investment focus is neighborhood and community shopping centers located
in the northeastern United States. These properties are considered core
properties of the Company. The remaining properties are located outside of the
northeastern United States and are considered non-core properties. Since a
significant concentration of the Company's properties are in the northeast,
market changes in this region could have an effect on the Company's leasing
efforts and ultimately its overall results of operations. The following is a
summary of the geographic locations of the Company's investments at October 31,
2005 and 2004 (in thousands):
2005 2004
-------------------------------------------------------------------- ------------------ ------------------
Northeast $407,184 $331,139
Midwest 696 8,089
Southwest 3,718 4,050
----- -----
$411,598 $343,278
======== ========
55
(3) CORE PROPERTIES
The components of core properties were as follows (in thousands):
2005 2004
- ---------------------------------------------------------- ----------------------------- ------------------
Land $87,066 $ 70,983
Buildings and improvements 381,378 310,954
------- -------
468,444 381,937
Accumulated depreciation (61,872) (51,451)
-------- --------
$406,572 $330,486
======== ========
Space at the Company's core properties is generally leased to various individual
tenants under short and intermediate term leases which are accounted for as
operating leases.
Minimum rental payments on non-cancelable operating leases become due as
follows: 2006 -$48,323,000; 2007 - $46, 389,000; 2008 - $41,247,000; 2009 -
$35,864,000; 2010 - $31,535,000 and thereafter - $142,700,000.
Certain of the Company's leases provide for the payment of additional rent based
on a percentage of the tenant's revenues. Such additional percentage rents are
included in operating lease income and were less than 1% of consolidated
revenues in each of the three years ended October 31, 2005.
Owned Properties
On January 7, 2005, the Company acquired The Dock Shopping Center ("The Dock"),
a 269,000 square foot shopping center located in Stratford, Connecticut for
$51.1 million (including closing costs of approximately $800,000). The
acquisition was funded with available cash and borrowings of $17.5 million under
the Company's secured line of credit.
On June 30, 2005, the Company acquired Staples Plaza ("Staples Plaza") a 200,000
square foot shopping center located in Yorktown, New York for a purchase price
of $28.5 million, including the assumption of a first mortgage loan and closing
costs of approximately $113,000. The Company recorded the assumption of the
mortgage loan at its estimated fair value which approximated $8.5 million. The
assumption of the mortgage loan represents a non-cash financing activity and is
therefore not included in the accompanying 2005 consolidated statement of cash
flows.
In fiscal 2004, the Company purchased four retail properties ("Rye Properties")
totaling 40,000 square feet of leasable space for total consideration of $11.0
million subject to mortgage loans totaling $4.7 million which encumbered three
of the properties. The assumption of the mortgage loans represent non-cash
financing activities and are therefore not included in the accompanying 2004
consolidated statement of cash flows. The Company evaluated the carrying amount
of the assumed mortgage loans and adjusted such amounts by $218,000 to reflect
their estimated fair values at the date of acquisition.
In fiscal 2003, the Company acquired the Westchester Pavilion in White Plains,
New York, for $39.9 million, seven retail building units in Somers Commons in
Somers, New York, for $21.65 million, Orange Meadows Shopping Center in Orange,
Connecticut, for $11.3 million, and Greens Farms Plaza, in Westport,
Connecticut, for $10.1 million.
56
Upon the acquisition of real estate properties, the fair value of the real
estate purchased is allocated to the acquired tangible assets, (consisting of
land, buildings and building improvements) and identified intangible assets and
liabilities, (consisting of above-market and below-market leases and in-place
leases) in accordance with SFAS No. 141 "Business Combinations". The Company
utilizes methods similar to those used by independent appraisers in estimating
the fair value of acquired assets and liabilities. The fair value of the
tangible assets of an acquired property considers the value of the property
"as-if-vacant". The fair value reflects the depreciated replacement cost of the
asset. In allocating purchase price to identified intangible assets and
liabilities of an acquired property, the value of above-market and below-market
leases are estimated based on the differences between (i) contractual rentals
and the estimated market rents over the applicable lease term discounted back to
the date of acquisition utilizing a discount rate adjusted for the credit risk
associated with the respective tenants and (ii) the estimated cost of acquiring
such leases giving effect to the Company's history of providing tenant
improvements and paying leasing commissions, offset by a vacancy period during
which such space would be leased. The aggregate value of in-place leases, is
measured by the excess of (i) the purchase price paid for a property after
adjusting existing in-place leases to market rental rates over (ii) the
estimated fair value of the property "as-if-vacant," determined as set forth
above. The above-market and below-market lease intangibles are amortized to
rental income over the remaining non-cancelable terms of the respective leases.
If a lease were to be terminated prior to its stated expiration, all unamortized
amounts relating to the lease would be immediately recognized in operations.
During fiscal 2005, the Company completed its evaluation of the acquired leases
at the Rye Properties and The Dock. As a result of its evaluations, the Company
has allocated $435,000 to a liability and $22,000 to an asset associated with
the net fair value assigned to the acquired leases at the Rye Properties, and
$103,000 to an asset associated with the net fair value assigned to the acquired
leases at The Dock. The Company is currently in the process of analyzing the
fair value of the acquired in-place leases of Staples Plaza and consequently, no
value has yet been assigned to the leases. Accordingly, the purchase price
allocation is preliminary and may be subject to change.
In fiscal 2005, the Company incurred costs of approximately $7.9 million
(including $2.6 million which was unpaid at October 31, 2005) related to capital
improvements to its properties and leasing costs.
Consolidated Joint Ventures
The Company is the general partner in a partnership that owns the Eastchester
Mall in Eastchester, New York. The limited partner contributed the property in
exchange for Common, Class A Common and Preferred LP Units (partnership units)
and is entitled to preferential distributions of cash flow from the property.
The limited partner may exchange its Common and Class A Common LP units with the
Company in exchange for shares of the Company's Common Stock and Class A Common
stock at any time on or prior to October 2007. However, the Company, at its
option, may elect to redeem the partnership units for cash. The limited partner
may also put its Preferred LP units to the Company for a fixed cash amount at
any time prior to October 2007. The Company also has an option to redeem all of
the partnership units for cash after October 2008. At October 31, 2005 there
were 54,553 each of Common LP units, Class A Common LP units and Preferred LP
units outstanding.
The Company is the general partner in a partnership that owns the Ridgeway
Shopping Center in Stamford, Connecticut. The partners are entitled to receive
an annual cash preference payable from available cash of the partnership. Any
unpaid preferences accumulate and are paid from future available cash, if any.
The limited partners' cash preferences are paid after the general partner's
preferences are satisfied. The balance of available cash, if any, is distributed
in accordance with the respective partners' interests. Upon liquidation,
proceeds from the sale of partnership assets are to be distributed in accordance
with the respective partners' interests. The partners are not obligated to make
any additional capital contributions to the partnership. The Company has
retained an affiliate of one of the limited partners to provide management and
leasing services to the property at an annual fee of $125,000 for a period of
five years ending in June 2007.
The limited partner interests are reflected in the accompanying consolidated
financial statements as Minority Interests.
The Company was the sole general partner in a limited partnership that owned the
Arcadian Shopping Center in Briarcliff Manor, New York. In July 2005, a
wholly-owned subsidiary of the Company acquired the remaining limited partner
interests in the partnership for a purchase price of $2.1 million. The Company
now controls 100% of the property.
57
(4) NON-CORE PROPERTIES
At October 31, 2005, the non-core properties consist of two distribution and
service properties and one retail property located outside of the Northeast
region of the United States. The Board of Directors has authorized management,
subject to its approval of any contract for sale, to sell the non-core
properties of the Company over a period of several years in furtherance of the
Company's objectives to focus on northeast properties.
The components of non-core properties were as follows (in thousands):
2005 2004
- --------------------------------------------------------------- ---------------------- ---------------------
Land $943 $1,943
Buildings and improvements 5,440 18,678
----- ------
6,383 20,621
Accumulated depreciation (3,381) (9,938)
------- -------
$3,002 $10,683
====== =======
Minimum rental payments on non-cancelable operating leases of the non-core
properties become due as follows: 2006 - $1,977,000; 2007 - $2,011,000; 2008 -
$1,852,000; 2009 - $1,567,000; 2010 - $1,567,000 and thereafter $2,126,000.
(5) DISCONTINUED OPERATIONS
In November 2004, the Company sold its retail property in Farmingdale, New York
for a sales price of $9.75 million that was under contract for sale and
classified as held for sale at October 31, 2004. The Company recorded a gain on
the sale of $5.6 million in fiscal 2005.
In June, 2005 the Company sold its office building in Southfield, Michigan for a
sales price of $9.2 million and recorded a gain on sale of $1.4 million in
fiscal 2005.
The operating results for the two properties sold in fiscal 2005 have been
reclassified as discontinued operations in the accompanying consolidated
financial statements. Revenues from discontinued operations were $1.7 million,
$4.1 million and $4.1 million for the years ended October 31, 2005, 2004, and
2003, respectively.
(6) MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable consist of two fixed rate mortgages with contractual
interest rates of 9% which are secured by commercial property. The mortgage
notes receivable are due in 2013. Interest is recognized on the effective yield
method. The mortgage notes are recorded at a discounted amount which reflected
market interest rates at the time of acceptance of the notes. At October 31,
2005 and 2004, the unamortized discounts were $303,000 and $349,000
respectively.
At October 31, 2005, principal payments on the mortgage notes receivable become
due as follows: 2006 - $142,000; 2007 - $156,000; 2008 - $170,000; 2009 -
$186,000; 2010 - $204,000 and thereafter - $1,469,000.
(7) MORTGAGE NOTES PAYABLE AND BANK LINES OF CREDIT
At October 31, 2005, mortgage notes payable are due in installments over various
periods to fiscal 2012 at effective rates of interest ranging from 5.75% to
8.125% and are collateralized by real estate investments having a net carrying
value of $192,471,000.
Combined aggregate principal maturities of mortgages notes payable during the
next five years and thereafter are as follows: (in thousands)
Scheduled Principal
Amortization Repayments Total
------------ ---------- -----
2006 $2,553 $4,933 $7,486
2007 2,516 9,112 11,628
2008 1,270 59,986 61,256
2009 648 17,107 17,755
2010 344 5,155 5,499
Thereafter 429 7,733 8,162
--- ----- -----
$7,760 $104,026 $111,786
====== ======== ========
58
At October 31, 2005, the Company had a secured revolving credit facility with a
commercial bank (the "Secured Credit Facility") which provides for borrowings of
up to $30 million. The Secured Credit Facility expires in April 2008 and is
collateralized by first mortgage liens on two of the Company's properties.
Interest on outstanding borrowings is at prime + 1/2% or LIBOR + 1.5%. The
Secured Credit Facility requires the Company to maintain certain debt service
coverage ratios during its term. The Company pays an annual fee of 0.25% on the
unused portion of the Secured Credit Facility. The Secured Credit Facility is
available to fund acquisitions, capital expenditures, mortgage repayments,
working capital and other general corporate purposes.
The Company also has a $30 million unsecured line of credit ("Unsecured credit
line") arrangement with the same bank. The Unsecured credit line expires in
January 2006 and is available to finance the acquisition of real estate,
refinance outstanding indebtedness and for working capital needs. The Company is
in the process of extending the unsecured credit line for an additional one year
period. The Unsecured credit line is an uncommitted bank arrangement and
extensions of credit are at the bank's discretion and subject to the bank's
satisfaction of certain conditions that must be met by the Company. Outstanding
borrowings bear interest at the Prime + 1/2% or LIBOR + 2.5%. The Company pays
an annual fee of 0.25% on unused amounts.
Interest paid in the years ended October 31, 2005, 2004, and 2003 was
$8,502,000, $8,113,000 and $8,094,000, respectively.
(8) REDEEMABLE PREFERRED STOCK
The 8.99% Series B Senior Cumulative Preferred Stock ("Series B Preferred
Stock") and 8.50% Series C Senior Cumulative Preferred Stock ("Series C
Preferred Stock") have no stated maturity, are not subject to any sinking fund
or mandatory redemption and are not convertible into other securities or
property of the Company. Commencing May 2008 (Series B Preferred Stock) and May
2010 (Series C Preferred Stock), the Company, at its option, may redeem the
preferred stock issues, in whole or in part, at a redemption price of $100 per
share, plus all accrued dividends. Upon a change in control of the Company (as
defined), each holder of Series B Preferred Stock and Series C Preferred Stock
has the right, at such holder's option, to require the Company to repurchase all
or any part of such holder's stock for cash at a repurchase price of $100 per
share, plus all accrued and unpaid dividends.
As the holders of the Series B Preferred Stock and Series C Preferred Stock only
have a contingent right to require the Company to repurchase all or part of such
holders shares upon a change of control of the Company (as defined), the Series
B Preferred Stock and Series C Preferred Stock are classified as redeemable
equity instruments as a change in control is not certain to occur.
The Series B Preferred Stock and Series C Preferred Stock contain covenants,
which require the Company to maintain certain financial coverages relating to
fixed charge and capitalization ratios. Shares of both Preferred Stock series
are non-voting; however, under certain circumstances (relating to non-payment of
dividends or failure to comply with the financial covenants) the preferred
stockholders will be entitled to elect two directors. The Company was in
compliance with such covenants at October 31, 2005 and 2004.
(9) STOCKHOLDERS' EQUITY
In fiscal 2005, the Board of Directors of the Company approved a stock
repurchase program for the repurchase of up to 500,000 shares of Common Stock
and Class A common stock in the aggregate. As of October 31, 2005, the Company
repurchased 3,600 shares of Common Stock and 41,400 shares of Class A Common
Stock at an aggregate repurchase cost of $686,000.
In April 2005, the Company sold 1,000,000 shares of a new 7.5% Series D Senior
Cumulative Preferred Stock ("Series D Preferred Stock") issue in a public
offering at a price of $25.00 per share. The net proceeds to the Company (after
deducting underwriting fees and expenses) were $24 million. In May 2005, the
Company sold an additional 650,000 shares of Series D Preferred Stock in a
public offering at a price of $25.2475 per share. The net proceeds to the
Company (after deducting underwriting fees and expenses) were $15.8 million. In
June 2005, the Company sold an additional 800,000 shares of Series D Preferred
Stock in a public offering at a price of $25.28 per share. The net proceeds to
the Company (after deducting underwriting fees and expenses) were $19.6 million.
The Series D Preferred Stock has no maturity and is not convertible into any
other security of the Company. The Series D Preferred Stock is redeemable at the
Company's option on or after April 12, 2010 at a price of $25.00 per share plus
accrued and unpaid dividends.
59
Underwriting commissions and costs incurred in connection with the sale of the
Series D Preferred Stock are reflected as a reduction of additional paid in
capital.
The Class A Common Stock entitles the holder to 1/20 of one vote per share. The
Common Stock entitles the holder to one vote per share. Each share of Common
Stock and Class A Common Stock have identical rights with respect to dividends
except that each share of Class A Common Stock will receive not less than 110%
of the regular quarterly dividends paid on each share of Common Stock.
The Company has a Dividend Reinvestment and Share Purchase Plan, as amended,
(the "DRIP") which permits shareholders to acquire additional shares of Common
Stock and Class A Common Stock by automatically reinvesting dividends. During
fiscal 2005, the Company issued 59,390 shares of Common Stock and 15,767 shares
of Class A Common Stock (181,720 shares of Common Stock and 18,306 shares of
Class A Common Stock in fiscal 2004) through the DRIP. As of October 31, 2005,
there remained 240,517 shares of common stock and 509,461 shares of Class A
common stock available for issuance under the DRIP.
The Company has a stockholder rights agreement, which expires on November 12,
2008. The rights are not currently exercisable. When they are exercisable, the
holder will be entitled to purchase from the Company one one-hundredth of a
share of a newly-established Series A Participating Preferred Stock at a price
of $65 per one one-hundredth of a preferred share, subject to certain
adjustments. The distribution date for the rights will occur 10 days after a
person or group either acquires or obtains the right to acquire 10% ("Acquiring
Person") or more of the combined voting power of the Company's Common Shares, or
announces an offer, the consummation of which would result in such person or
group owning 30% or more of the then outstanding Common Shares. Thereafter,
shareholders other than the Acquiring Person will be entitled to purchase
original common shares of the Company having a value equal to two times the
exercise price of the right.
If the Company is involved in a merger or other business combination at any time
after the rights become exercisable, and the Company is not the surviving
corporation or 50% or more of the Company assets are sold or transferred, the
rights agreement provides that the holder other than the Acquiring Person will
be entitled to purchase a number of shares of common stock of the acquiring
company having a value equal to two times the exercise price of each right.
The Company's articles of incorporation provide that if any person acquires more
than 7.5% of the aggregate value of all outstanding stock, except, among other
reasons, as approved by the Board of Directors, such shares in excess of this
limit automatically shall be exchanged for an equal number of shares of Excess
Stock. Excess Stock has limited rights, may not be voted and is not entitled to
any dividends.
60
(10) STOCK OPTION AND OTHER BENEFIT PLANS
Stock Option Plan
The Company has a stock option plan whereby 824,093 Common shares and 744,464
Class A Common shares were reserved for issuance to key employees and
non-employee Directors of the Company. There were no grants of stock options in
each of the three years ended October 31, 2005. As of October 31, 2005 options
to purchase 2,406 shares of Class A Common Stock (and no shares of common stock)
were available for future grant. Options are granted at fair market value on the
date of the grant, have a duration of ten years from the date of grant, and vest
over a maximum period of four years from the date of grant.
A summary of stock option transactions during the three years ended October 31,
2005 is as follows:
Year ended October 31 2005 2004 2003
----- ----- ----
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Common Stock: Shares Prices Shares Prices Shares Prices
------ ------ ------ ------ ------ ------
Balance at beginning of period 25,148 $7.70 55,876 $7.62 91,570 $7.50
Granted - - - - - -
Exercised (7,750) $6.91 (15,000) $7.29 (18,000) $7.22
Canceled/Forfeited - - (15,728) $7.27 (17,694) $7.44
------ ------ ------
Balance at end of period 17,398 $8.05 25,148 $7.70 55,876 $7.62
Exercisable 17,398 25,148 55,876
Class A Common Stock:
Balance at beginning of period 19,109 $7.85 42,733 $7.83 66,810 $7.71
Granted - - - - - -
Exercised (6,750) $6.95 (23,624) $7.93 (24,077) $7.61
Canceled/Forfeited - - - - - -
------ ------ ------
Balance at end of period 12,359 $8.34 19,109 $7.85 42,733 $7.83
Exercisable 12,359 19,109 42,733
At October 31, 2005, exercise prices of shares of Common Stock and Class A
Common Stock under option ranged from $7.66 to $9.03, for the Common Stock and
$7.71 to $9.09, for the Class A Common Stock. For both classes of stock, option
expiration dates range from April 2007 through April 2009 and the weighted
average remaining contractual life of these options is 1.5 years. There were no
unvested stock options outstanding during the three years ended October 31, 2005
and; accordingly, no compensation expense would have been recognized consistent
with the provisions of SFAS No. 123.
As of October 31, 2005, outstanding options to acquire approximately 3,000
shares each of Common Stock and Class A Common Stock permit the optionee to
elect to receive either shares of Common Stock, Class A Common Stock or a
combination of both. Upon an election to exercise shares of a class of common
stock by the optionee, an equivalent number of shares of the class of common
stock not elected by such optionee are deemed cancelled and no longer available
for future grants.
In connection with the exercise of stock options in a prior year, an officer of
the Company executed a full recourse promissory note equal to the purchase price
of the shares. At October 31, 2005 and 2004, the outstanding balance of the
officer's note receivable totaled $1,300,000. The outstanding note matures in
2012 and bears interest at 6.78%. The shares are pledged as additional
collateral for the notes. Interest is payable quarterly.
Restricted Stock Plan
The Company has a restricted stock plan for key employees and directors of the
Company (the "Plan"). The Plan, as amended, provides for the grant of up to
1,650,000 shares of the Company's common equity consisting of 350,000 Common
shares, 350,000 Class A Common shares and 950,000 shares, which at the
discretion of the Company's compensation committee, may be awarded in any
combination of Class A common shares or Common shares. In January, 2005, the
compensation committee awarded 175,800 shares of Common Stock and 75,675 shares
of Class A Common Stock to participants in the plan. The fair value of
restricted stock grants in the years ended October 31, 2005, 2004, and 2003 were
$4.1 million, $3.2 million and $2.7 million, respectively. Since the inception
61
of the plan, the compensation committee has awarded a total of 860,800 shares of
Common Stock and 376,800 shares of Class A Common Stock to participants as an
incentive for future services. The shares vest between five and ten years after
the date of grant. At October 31, 2005, 37,625 shares each of Common Stock and
Class A Common Stock were vested. Dividends on vested and non-vested shares are
paid as declared. The market value of shares granted is recorded as unamortized
restricted stock compensation on the date of grant. Unamortized restricted stock
compensation is expensed over the respective vesting periods. For the years
ended October 31, 2005, 2004, and 2003 amounts charged to compensation expense
totaled $1,617,000, $1,322,000 and $1,105,000, respectively.
Profit Sharing and Savings Plan
The Company has a profit sharing and savings plan (the "401K Plan"), which
permits all eligible employees to defer a portion of their compensation in
accordance with the Internal Revenue Code. Under the 401K Plan, the Company may
make discretionary contributions on behalf of eligible employees. For the years
ended October 31, 2005, 2004 and 2003, the Company made contributions to the
401K Plan of $135,000, $127,000 and $95,000 respectively. The Company also has
an Excess Benefits and Deferred Compensation Plan that allows eligible employees
to defer benefits in excess of amounts provided under the Company's 401K Plan
and a portion of the employee's current compensation.
(11) COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in
legal actions relating to the ownership and operations of its properties. In
management's opinion, the liabilities, if any that may ultimately result from
such legal actions are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
At October 31, 2005, the Company had commitments of approximately $436,000 for
tenant related obligations.
(12) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma financial information set forth below is based upon the
Company's historical consolidated statements of income for the years ended
October 31, 2005 and 2004 adjusted to give effect to the acquisitions completed
in fiscal 2005 (see Note 3), and the issuance of shares of Series D Preferred
Stock in fiscal 2005 as though these transactions were completed on November 1,
2003.
The pro forma financial information is presented for informational purposes
only and may not be indicative of what the actual results of operations would
have been had the transactions occurred as of the beginning of each respective
year nor does it purport to represent the results of future operations. (Amounts
in thousands, except per share figures).
Year Ended October 31,
2005 2004
---- ----
Pro forma revenues $72,871 $70,471
======= =======
Pro forma income from continuing operations $24,843 $25,828
======= =======
Pro forma income from continuing operations applicable to
Common and Class A Common stockholders: $16,599 $18,266
======= =======
Pro forma basic shares outstanding:
Common and Common Equivalent 6,566 6,414
===== =====
Class A Common and Class A Common Equivalent 18,280 18,248
====== ======
Pro forma diluted shares outstanding:
Common and Common Equivalent 7,067 6,820
===== =====
Class A Common and Class A Common Equivalent 18,840 18,836
====== ======
Pro forma earnings per share from continuing operations:
Basic:
Common $ .62 $ .69
====== =====
Class A Common $ .68 $ .76
====== =====
Diluted:
Common $ .61 $ .68
====== =====
Class A Common $ .67 $ .74
====== =====
62
(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October 31,
2005 and 2004 are as follows (in thousands, except per share data):
Year Ended October 31, 2005 Year Ended October 31, 2004
--------------------------- ---------------------------
Quarter Ended Quarter Ended
------------- -------------
Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31
------ ------ ------- ------ ------ ------ ------- ------
Revenues (1) $16,556 $17,986 $17,347 $18,075 $16,095 $15,395 $14,938 $15,452
====== ======= ======= ======= ======= ======= ======= =======
Income from Continuing Operations
before Discontinued Operations $5,624 $6,021 $5,737 $6,114 $5,889 $5,555 $4,937 $5,588
====== ====== ====== ====== ====== ====== ====== ======
Net Income $11,473 $6,112 $7,286 $6,114 $6,271 $5,866 $5,341 $5,837
Preferred Stock Dividends (1,187) (1,286) (2,200) (2,336) (1,187) (1,187) (1,187) (1,188)
------ ------- ------- ------- ------- ------- ------- -------
Net Income Applicable to Common
and Class A Common Stockholders (2) $10,286 $4,826 $5,086 $3,778 $5,084 $4,679 $4,154 $4,649
======= ====== ====== ====== ====== ====== ====== ======
Per Share Data:
Net Income from Continuing Operations-
Basic:
Class A Common Stock $.19 $.20 $.15 $.14 $.20 $.19 $.15 $.17
Common Stock $.18 $.18 $.13 $.13 $.18 $.18 $.14 $.15
Net Income from Continuing Operations-
Diluted:
Class A Common Stock $.19 $.19 $.14 $.14 $.20 $.19 $.15 $.17
Common Stock $.17 $.18 $.13 $.12 $.18 $.17 $.13 $.16
(1) All periods have been adjusted to reflect the impact of operating
properties sold during fiscal 2005, which are reflected in the caption
Discontinued Operations in the accompanying Consolidated Statements of
Income.
(2) Includes gains on sales of properties of $5.6 million and $1.4 million
in the quarters ended January 31, 2005 and July 31,
2005, respectively.
(14) SUBSEQUENT EVENTS
On December 14, 2005, the Board of Directors of the Company declared cash
dividends of $0.2025 for each share of Common Stock and $0.2250 for each share
of Class A Common Stock. The dividends are payable on January 20, 2006. The
Board of Directors also ratified the actions of the Company's compensation
committee authorizing the awards of 165,800 shares of Common Stock and 79,050
shares of Class A Common Stock to certain key officers and directors of the
Company on January 3, 2006 pursuant to the Company's restricted stock plan. The
fair value of the shares awarded amounted to approximately $3.9 million and will
be charged to expense over the respective vesting periods.
On January 10, 2006, the Company entered into a contract to sell unimproved land
that it owns in Tempe, Arizona for $2,250,000 in cash. The contract is subject
to certain contingencies .
63
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Urstadt Biddle Properties Inc.
We have audited the accompanying consolidated balance sheets of Urstadt Biddle
Properties Inc. (the "Company") as of October 31, 2005 and 2004, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended October 31, 2005. Our audits also
included the financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Urstadt Biddle
Properties Inc. at October 31, 2005 and 2004, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended October 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Urstadt Biddle
Properties Inc.'s internal control over financial reporting as of October 31,
2005, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated January 12, 2006 expressed an unqualified opinion thereon.
New York, New York /s/ Ernst & Young LLP
January 12, 2006
64
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2005
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- ---------------------------------------------------------------------------------------------------------------------------
Cost Capitalized Subsequent
Initial Cost to Company to Acquisition
----------------------- --------------------------
Description and Building & Building &
Location Emcumbrances Land Improvements Land Improvements
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Subject to Operating Leases (Note(a)):
Office Buildings:
Greenwich, CT ** $708 $1,641 $ - $26
Greenwich, CT ** 488 1,139 - 61
Greenwich, CT ** 570 2,359 - 180
Greenwich, CT ** 199 795 - 83
Greenwich, CT ** 111 444 - -
----------------------------------------------------
5,565 2,076 6,378 - 350
----------------------------------------------------
Shopping Centers:
Somers, NY - 4,318 17,268 - 481
Stratford, CT - 10,193 40,794 - -
Yorktown Heigths, NY 8,410 5,771 23,084 - -
Westport, CT - 2,076 8,305 - 187
White Plains, NY - 8,065 32,258 - 2,098
Rye, NY - 909 3,637 - 5
Rye, NY 1,908 483 1,930 - -
Rye, NY 869 239 958 - -
Rye, NY 1,955 695 2,782 - -
Orange, CT - 2,321 10,564 - 94
Stamford, CT 54,493 17,965 71,859 - 4,436
Danbury, CT - 2,459 4,566 - 267
Briarcliff, NY 3,759 2,222 5,185 - 23
Somers, NY 5,851 1,834 7,383 - 37
Briarcliff, NY 5,091 2,300 9,708 15 1,797
Ridgefield, CT - 900 3,793 - 574
Darien, CT 13,289 4,260 17,192 - 687
Eastchester, NY 4,278 1,500 6,128 - 718
Tempe, AZ - 493 2,284 - 1,379
Danbury, CT * - 3,850 15,811 - 3,936
Carmel, NY 4,663 1,488 5,973 - 1,650
Meriden, CT - 5,000 20,309 - 6,680
Somers, NY 1,655 821 2,600 - -
Wayne, NJ * - 2,492 9,966 - 502
Newington, NH - 728 1,997 - 3,435
Springfield, MA - 1,372 3,656 334 15,521
-----------------------------------------------------
106,221 84,754 329,990 349 44,507
-----------------------------------------------------
Industrial Distribution Center
Dallas, TX - 218 844 - -
St. Louis, MO - 232 933 - -
-----------------------------------------------------
- 450 1,777 - -
-----------------------------------------------------
Mixed Use Facility: Retail/Office:
Briarcliff, NY - 380 1,531 - 2,285
-----------------------------------------------------
- 380 1,531 - 2,285
-----------------------------------------------------
Total $111,786 $87,660 $339,676 $349 $47,142
=====================================================
65
- ---------------------------------------------------------------------------------------------------------------------------------
Life on which
Amount as which Carried at Close of Period depreciation for
------------------------------------------ building and
Accumulated Date improvements in latest
Description and Building & Depreciation Constructed/ income statement is
Location Land Improvement Total(a) (Note(b)) Acquired computed (Note(c))
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Subject to Operating Leases (Note(a)):
Office Buildings:
Greenwich, CT $708 $1,667 $2,375 $192 2001 31.5
Greenwich, CT 488 1,200 1,688 174 2000 31.5
Greenwich, CT 570 2,539 3,109 481 1998 31.5
Greenwich, CT 199 878 1,077 278 1993 31.5
Greenwich, CT 111 444 555 129 1994 31.5
-----------------------------------------
2,076 6,728 8,804 1,254
----------------------------------------
Shopping Centers:
Somers, NY 4,318 17,749 22,067 1,067 2003 39.0
Stratford, CT 10,193 40,794 50,987 872 2005 39.0
Yorktown Heigths, NY 5,771 23,084 28,855 197 2005 39.0
Westport, CT 2,076 8,492 10,568 606 2003 39.0
White Plains, NY 8,065 34,356 42,421 2,481 2003 39.0
Rye, NY 909 3,642 4,551 137 2004 39.0
Rye, NY 483 1,930 2,413 74 2004 39.0
Rye, NY 239 958 1,197 36 2004 39.0
Rye, NY 695 2,782 3,477 106 2004 39.0
Orange, CT 2,321 10,658 12,979 776 2003 39.0
Stamford, CT 17,965 76,295 94,260 6,388 2002 39.0
Danbury, CT 2,459 4,833 7,292 445 2002 39.0
Briarcliff, NY 2,222 5,208 7,430 571 2001 40.0
Somers, NY 1,834 7,420 9,254 1,452 1999 31.5
Briarcliff, NY 2,315 11,505 13,820 2,120 1998 40.0
Ridgefield, CT 900 4,367 5,267 856 1998 40.0
Darien, CT 4,260 17,879 22,139 3,332 1998 40.0
Eastchester, NY 1,500 6,846 8,346 1,315 1997 31.0
Tempe, AZ 493 3,663 4,156 2,278 1970 40.0
Danbury, CT 3,850 19,747 23,597 5,395 1995 31.5
Carmel, NY 1,488 7,623 9,111 2,104 1995 31.5
Meriden, CT 5,000 26,989 31,989 10,342 1993 31.5
Somers, NY 821 2,600 3,421 888 1992 31.5
Wayne, NJ 2,492 10,468 12,960 3,496 1992 31.0
Newington, NH 728 5,432 6,160 3,233 1979 40.0
Springfield, MA 1,706 19,177 20,883 11,028 1970 40.0
----------------------------------------
85,103 374,497 459,600 61,595
----------------------------------------
Industrial Distribution Center
Dallas, TX 218 844 1,062 632 1970 40.0
St. Louis, MO 232 933 1,165 470 1970 40.0
----------------------------------------
450 1,777 2,227 1,102
----------------------------------------
Mixed Use Facility: Retail/Office:
Briarcliff, NY 380 3,816 4,196 1,302 1999 40.0
----------------------------------------
380 3,816 4,196 1,302
----------------------------------------
----------------------------------------
Total $88,009 $386,818 $474,827 $ 65,253
=========================================
<FN>
*Properties secure a $30 million secured revolving credit line. At October 31, 2005 there were no outstanding borrowings.
**Properties are cross collateralized in the amount of $5,565 at October 31, 2005.
</FN>
66
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2005
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(In thousands)
Year Ended October 31,
NOTES: 2005 2004 2003
---- ---- ----
(a) RECONCILIATION OF REAL ESTATE -
OWNED SUBJECT TO OPERATING LEASES
Balance at beginning of year $402,558 $396,117 $310,646
Property improvements during the year 6,810 2,248 2,393
Properties acquired during the year 80,301 11,221 84,964
Property reclassed to property held for sale - (5,327) -
Properties sold during the year (f) (14,238) - -
Property assets fully written off (604) (1,701) (1,886)
----- ------- -------
Balance at end of year $474,827 $402,558 $396,117
======== ======== ========
(b) RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year $61,389 $53,982 $45,993
Provision during the year charged to income 11,735 10,669 9,875
Property sold during the year (f) (7,267) - -
Property reclassed to property held for sale - (1,561) -
Property assets fully written off (604) (1,701) (1,886)
----- ------- -------
Balance at end of year $65,253 $61,389 $53,982
======= ======= =======
(c) Tenant improvement costs are depreciated over the life of the related
leases, which range from 5 to 20 years.
(d) The aggregate cost basis for Federal income tax purposes at October 31,
2005 is $508,486.
(e) The depreciation provision represents the expense calculated on real
property only.
(f) Properties sold during fiscal year ended October 31, 2005 exclude property
reclassified to held for sale during fiscal year ended October 31, 2004.
67
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2005
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------------------------------------------------------------------------------------------
Remaining Face
Amount of Carrying Amount
Interest Rate Final Maturity Mortgages (Note (b) of Mortgage (Note (a))
Description Coupon Effective Date Periodic Payment Terms (In Thousands) (In Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (Notes (c) and (d)):
Retail Store:
Erie, PA 9% 14% 1-Jul-13 Payable in monthly installments of
Principal and Interest of $11 $723 $612
Retail Store:
Riverside, CA 9% 12% 15-Jan-13 Payable in quarterly installments
of Principal and Interest of $54 1,604 1,412
----------------------------------------
TOTAL MORTGAGE LOANS ON REAL ESTATE $2,327 $2,024
========================================
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2005
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)
(In thousands)
NOTES TO SCHEDULE IV Year Ended October 31
(a) Reconciliation of Mortgage Loans on Real Estate
2005 2004 2003
(a) Balance at beginning of period: $ 2,109 $ 2,184 $ 2,251
Deductions during the current period:
Collections of principal and amortization of discounts (85) (75) (67)
--------------------------------------------
Balance at end of period: $ 2,024 $ 2,109 $ 2,184
============================================
(b) The aggregate cost basis for Federal income tax purposes is equal to the
face amount of the mortgages (c) At October 31, 2005 no mortgage loans were
delinquent in payment of currently due principal or interest. (d) There are no
prior liens for any of the Mortgage Loans on Real Estate.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
URSTADT BIDDLE PROPERTIES INC.
By: /s/Charles J. Urstadt
-----------------------------
Charles J. Urstadt
Chairman and Chief
Executive Officer
By: /s/James R. Moore
-----------------------------
Executive Vice President and
Chief Financial Officer
Dated: January 13, 2006
69
Pursuant to the requirements of the Securities Exchange Act
of 1934, the following persons on behalf of the Registrant and in the capacities
and on the date indicated have signed this Report below.
/S/ Charles J. Urstadt January 13, 2006
- ------------------------------
Charles J. Urstadt
Chairman and Director
(Principal Executive Officer)
/S/ Willing L. Biddle January 13 2006
- ---------------------------
Willing L. Biddle
President and Director
/S/ James R. Moore January 13, 2006
- --------------------------
James R. Moore
Executive Vice President -
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/S/ E. Virgil Conway January 13, 2006
- ---------------------------
E. Virgil Conway
Director
/S/ Robert R. Douglass January 13, 2006
- --------------------------
Robert R. Douglass
Director
/S/ Peter Herrick January 13, 2006
- -------------------------------
Peter Herrick
Director
/S/ George H.C. Lawrence January 13, 2006
- ------------------------
George H. C. Lawrence
Director
/S/ Robert J. Mueller January 13, 2006
- ---------------------
Robert J. Mueller
Director
/S/ Charles D. Urstadt January 13, 2006
- -----------------------------
Charles D. Urstadt
Director
/S/ George J. Vojta January 13, 2006
- --------------------------------
George J. Vojta
Director
70